Page 43 - DIY Investor Magazine - Issue 27

‘WE SEE ATTRACTIVE INVESTMENT OPPORTUNITIES WITHIN THE FINANCIAL SECTOR DUE TO TAILWINDS CAUSED BY M&A, RESTRUCTURING AND DIGITIZATION’
Despite the continuing low interest rate environment, European banks, are very attractive in the current market context from a bond investor standpoint.
BANK BONDS: WHAT ARE THE MAJOR OPPORTUNITIES AXIOM SEES IN 2021?
Strong fundamentals, a supportive backdrop and a good risk adjusted yield are not the only reasons for Axiom to believe the European financial debt market is currently one of the most attractive sectors in the fixed income market.
We see attractive investment opportunities within the financial sector due to tailwinds caused by M&A, restructuring and digitization.
We believe that continued consolidation and cost efficiency improvements in 2021 should boost the sector and provide further upside potential.
During lockdown, bank customers, and banks themselves, were able to see the advantages of online banking. We believe the crisis will expedite the digitisation of banks, thus leading to cost and efficiency advantages.
Some banks have announced they won’t reopen branches that were closed during lockdown. This should help improve the sector’s cost/income ratio, which remains high in some countries. For example, there are 60 branches per 100,000 inhabitants in France, compared with 15 in the United Kingdom.
To give few examples: (i) In Germany, Commerzbank announced an aggressive restructuring plan that aims at a 30% reduction in headcount, coupled with a reduction in
the number of branches, half of which are to be closed. (ii)
the planned exit of Natwest from Ireland continues to attract interest from local competitors and private equity firms (iii)
In Spain, Unicaja and Liberbank finalized the terms for their merger, creating the 5th largest bank in Spain with c.€110bn in assets.
We believe that further cost reductions, whether organic or through M&A, will strengthen banks’ operating profitability, particularly in the most segmented markets.
AXIOM EUROPEAN FINANCIAL DEBT (AXI LN): A DIVERSIFIED PORTFOLIO TARGETING 6P DIVIDEND
AXI is an investment trust listed on the London Stock Exchange offering investors exposure to a diversified portfolio covering the entire European financial sector.
AXI has a current yield of 8% and pays 6 pence dividend per annum, distributed quarterly.
The fund enables investors to take advantage of the best opportunities within the sector and provides attractive income over and above traditional income investments, while maintaining a prudent level of diversification and limiting downside risk.
More information about Axiom European Financial Debt Fund here >
To buy this trust login to your EQi account
Select Axiom European Financial Debt Fund (AXI LN) -
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43 DIY Investor Magazine | Mar 2021