Sanjeev Shah's move to add a basket of financial stocks at the height of market fear following the Lehman fall has paid off for his top-decile Fidelity Special Situations fund.
Shah has beat his peer group by about 14% over the past year, with his current largest active position - Royal Bank of Scotland - contributing to the out-performance of the £2.5bn fund.
The FTSE All Share lost a third of its value from the Lehman collapse on 15 September to the March market low, with the financials component of the index down about two thirds.
While the stability of the banking system was severely in doubt, Shah's contrarian approach saw him add to a number of positions in the sector.
"The question was whether the banking system would collapse and I felt that was unlikely," Shah says.
"While there would be casualties, there would also be survivors who would thrive in a less competitive environment in the eventual recovery.
"Given the elevated risks I deliberately bought a wide range of financial stocks during the latter part of 2008, in order to spread the risks."
Following unprecedented UK Government and central bank support for the economy and specifically the banking sector, a number of financial institutions have thrived since the March low.
Barclays has climbed almost 500%, Lloyds Banking Group 134%, RBS 168%, Standard Chartered 89% and HSBC 66%.
"The bank sector was under considerable pressure and valuations fell far below the levels seen in the recession of the early 1990s," Shah adds.
At 31 July, the Fidelity Special Situations fund had two banks in its top ten holdings, HSBC and RBS.
While the sector has seen strong gains from the lows, Fidelity says UK financials are still down 21% from the Lehman Brothers demise, with banks 26% lower. Dividend payouts by all UK companies have declined 4.5% - but the banking sector, a traditional dividend stalwart, is paying 50% less in total.
Fidelity UK Aggressive fund manager Aruna Karunathilake remains cautious on the bank sector however, preferring to focus on the perceived safer names.
"I remain underweight banks as a whole, but have increased holdings in Barclays and Standard Chartered, both of which have emerged with stronger franchises as a result of the financial crisis," he says.
"I remain underweight financials overall, with holdings concentrated in non life insurance and diversified financials."
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