Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall, and here with me today is Guy de Blonay, manager of the Jupiter Financial Opportunities Fund.
Hello, Guy.
Guy de Blonay: Hello, Emma. Thank you very much.
Wall: So your fund is invested in international equities. So where are you seeing the opportunities in the financial sector globally at the moment?
de Blonay: Opportunities can be found on the different thematics. You've got the restructuring stories that offer investors the potential repositioning of a company with the change in managements, reduction in costs and a regain of flavour for a particular story, that restructuring story can offer.
Then you've got growth stories. Companies that are well established did not or haven't been punished during the crisis because they did not abuse or exaggerated within – during the crisis, but are offering a particular product or a service that is still very much in vogue and will continue to allow its profitability to flourish.
I could take an example of Visa (V), MasterCard (MA), typically companies that are offering you a network for you to continue to use your credit card more often than paying cash wherever you go to buy a product or a good. So, growth stories would also be alongside the restructuring stories, two thematics that we are looking at.
And the third one, which I think is quite important is the yield or the dividend stories, companies that are reducing their growth strategy towards focusing on profitability, but also giving money back to shareholders. And I think again if we come back to the Lloyds question here – Lloyds (LLOY) is half way from being restructuring stories into becoming a dividend daddy as we call them; a company that doesn’t need to spend or retain too much of its earnings power to fund growth, but instead of funding that growth, giving money back to shareholders. So a steadier story rather than the chase towards revenue growth that has been very much punished over the years.
Wall: The U.K. banking sector did used to make up a significant part of the dividend players in the U.K. and Lloyds, I think, is going to start repaying a dividend this year?
de Blonay: Possibly this year, possibly more likely 2015. I think we need to know what the PRA [Prudential Regulation Authority] stance would be, but, I think, the capital position or balance sheets generally speaking for the sector, I think that has to be said has never been that good. But, obviously, regulators are not going to be too soft about it. We'll continue to be quite constringent. But I think the worst is over. Balance sheets are better and companies are normalizing their profitability and that will enable them to become – again, if they do chose the dividend route to become dividend daddies again.
Wall: Of course, the U.K. was not the only country to have a banking crisis. At the moment, there is quite a lot of worry and concern about emerging markets and in the Chinese and financial sector. Where are you concerned about now? Are you just sort of avoiding some economies altogether?
de Blonay: Well, I think, if you take a step back here, emerging markets for all the crisis we've seen in the past, the one we're going through at the moment is slightly different. I think it would be characterized more by social unrest, inequalities, wastage of money into public infrastructures that nobody uses. I think there is perhaps – and that’s very much supported by social media.
So, you've got this contagion potential that is affecting all markets, but this I think also has been triggered by the Federal Reserve. The U.S. Federal Reserve decision to pursue a tapering period and potentially interest rates expectation down the line two, three years out from where we are now.
So, if your question can derive towards, is the potential emerging market crisis going to force the Fed to reduce that tapering or slow down the pace of tapering, I'm not so sure, but clearly, markets will try to test that. They are going to ask if the Fed is going to do something about it or not and that’s why further volatility is to be expected in that space.
Wall: Guy, thank you very much.
de Blonay: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
