Paul Taylor, whose Australian equity fund beat 91 percent of peers over five years, is considering buying the nation’s bank stocks amid a 14 percent slide, saying valuations and dividends are getting more attractive.
“You’ve now got better value,” Taylor, Sydney-based head of local equities at Fidelity Worldwide Investment, which manages $285 billion, said by phone last week. “The pullback makes it even more interesting. For people looking for yield with a bit of growth, they’re not bad options.”
The slump in Australia’s lenders, which account for 30 percent of the country’s benchmark stock measure, dragged valuations this month to the cheapest level in three years relative to global peers. Commonwealth Bank of Australia and its peers slid on concern capital raising will curb profit growth.
Taylor’s fund, the largest for actively-managed Australian equity investments, owns shares in the nation’s four main lenders. He favored Commonwealth Bank in 2009 before its 250 percent surge gave the biggest boost to the country’s bull market in equities over the next six years.
One of his top picks this year is Macquarie Group Ltd., Australia’s largest investment bank, which is up 37 percent in 2015.
Taylor said he owns fewer bank stocks than are represented in the benchmark index. He hasn’t bought National Australia Bank Ltd. during the selloff and the lender accounts for the lowest proportion among the banks in his fund. Taylor declined to give further details of his recent trades.
“I am considering adding to bank shares and I am watching prices,” he said.
Forward dividend yields on Commonwealth Bank, NAB, Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. are among the highest in an index of global bank shares, with all forecast to pay out at least 5 percent.
Commonwealth Bank and Westpac lost 1.3 percent in Sydney on Thursday, pacing the S&P/ASX 200 Index’s decline. ANZ slipped 1.5 percent and NAB dropped 0.7 percent.
Warren Buffett told the Age newspaper this week he may buy an equity stake in at least one of the country’s banks.
“In looking at banks, I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks,” he said.
Three of the four lenders pledged to bolster their balance sheets after the banking regulator said in April that recommendations in a government report into the financial system for higher buffers against home-loan risks can be “dealt with sooner rather than later.”
“The regulatory risk around increased capital is definitely there, but the banks should be able to do that relatively easily,” Taylor said. “They are looking quite attractive.”