James Henderson: buy banks

James Henderson, who (with Laura Foll) manages the Henderson Opportunities Trust and the Law Debenture investment trusts, as well as the open-ended Janus Henderson UK Equity Income & Growth fund, is a fan of UK banks.

“I like all the UK domestics,” he tells Citywire’s Michelle McGagh. A management change at NatWest “has been really positive“, while “Lloyds has a great franchise and Barclays is a great business and broader than the other two”. Henderson plans to boost the share of the funds invested in the banking sector to more than 10%. Why? He expects that rising inflation expectations and the resulting increase in long-term bond yields should be good for the sector, particularly as the economy recovers. “Banks will lend to companies that will need more working capital... and banks should make a decent margin doing that lending.”

Meanwhile, banks will also be able to start paying dividends again after the government told them to stop last year in order to preserve capital amid lockdown. In turn that will allow the trusts to keep paying dividends without raiding their capital reserves (investment trusts can retain income and pay it out during leaner periods).

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The shift into banks will be partly paid for by taking profits on “green” stocks, including fuel-cell technology group Ceres Power, which has soared amid investors’ growing interest in clean energy and hydrogen in particular.