Top U.K. Fund Manager Bets Big on Banks With His Own Savings

  • Standard Life’s Cumming owns shares of Barclays, Virgin Money
  • Equity fund has risen 35% this year to beat most rivals

David Cumming has put his money where his mouth is. And it’s paying off.

The head of equities at Standard Life Investments owns a chunk of his firm’s U.K. Equity Recovery Fund, which has gained 35 percent in 2016 and is beating virtually all rivals that focus on British stocks. Key to this year’s success was his timing on backing miners -- he turned bullish on Anglo American Plc and Glencore Plc before they soared 268 percent and 169 percent, respectively.

The next big opportunity, he says, lies in banks and insurers. The two industry groups make up about a quarter of his 40 million-pound ($49 million) fund. When lenders tumbled as much as 16 percent in the immediate aftermath of Britain’s secession vote, Cumming bought shares of Virgin Money Holdings (UK) Plc and Barclays Plc, now the fund’s largest position.

“I buy stocks that nobody likes and whose recovery prospects are mispriced,” Cumming said by phone from Edinburgh. His firm, the asset-management arm of Scotland’s largest insurer, oversees 269 billion pounds. “Everyone hated mining last year and this year it’s banks. People tend to lose objectivity when there’s a lot of emotion, and let macro news bounce them around.”

Virgin Money and Barclays are up more than 49 percent since a June low. The 54-year-old Scot said he bought the shares not just because they were cheap -- both traded below the value of their assets at the time -- but also on bets the lenders will eventually benefit from higher borrowing costs globally. Traders predict the Federal Reserve will raise interest rates by December, and are pricing in little chance of a further cut from the Bank of England in 2017.

Anglo and Glencore, Cumming’s previous bets, benefited in 2016 from a rebound in metal and oil prices. U.K. mining companies, which report earnings in dollars, also got a boost from the sterling slump.

U.K. shares fell on Friday, following losses in the rest of Europe.

Cumming’s fund, in which he holds an undisclosed stake, has beaten 99 percent of rivals in 2016, data compiled by Bloomberg show. It has surged more than fourfold since its inception in March 2009, a month that marked a six-year low for global equities. In the same period, the FTSE All-Share Index has doubled.

With U.K. equity benchmarks hovering near records, he predicts a tough year ahead. He has trimmed his holdings of miners. About half of the firms on the FTSE 100 Index are more expensive than their five-year average, on an estimated earnings basis.

“Some parts of the market are severely overpriced,” he said. “I’d wait for another drawdown to pick up some good opportunities. Macro factors could sway equities again, given we’re facing weaker economic growth and uncertain policy.”

While the U.K.’s economic expansion beat estimates in the third quarter, it was driven by services as manufacturing and construction declined. With Prime Minister Theresa May saying she’ll trigger formal negotiations with the European Union by March, forecasters on average are calling for the slowest pace of growth next year since 2009’s recession.

That’s not holding back Cumming from going all in on his bets. He has allocated just 1.2 percent of the U.K. stocks fund to cash, compared with an average 5.8 percent held by global fund managers in a Bank of America Corp. survey this month.

“I tend to be fully invested,” Cumming said. “My thinking is that I should be able to find something to do with the money.”

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