Newly-founded Ark Asset Management, run by ex-Flemings fund managers Lesley Sherratt and Jeremy Harri...
Sherratt, who spent 10 years at Flemings running financials portfolios and was also investment director for the UK and Europe, believes the sector offers natural opportunities for stockpickers.
While the fund does not aim to be fully market neutral it operates a non-directional 'pairs' strategy, aiming to match long and short positions so that returns are derived largely from stockpicking rather than from market or currency movements.
Sherratt said: "A number of trends in the financials sector makes this area particularly interesting at the moment, because all will create winners and losers.
"We are focusing on three key trends. The first is disintermediation. New players are entering the market as a result of new technology and deregulation.
"The second is consolidation, which has been particularly prevalent in the US and is now growing in Europe. With the advent of the euro, banks are realising that they have to aim to be the biggest in Europe.
"Our third investment trend is relative valuation, or the search for valuation anomalies between stocks."
The investment process for both long and short positions begins with a fundamental analysis, Sherratt said.
"We consider a number of factors, including capital adequacy, reserve analysis, strength of management and the earnings picture. Another important factor in this sector is franchise value - even a good bank whose franchise was Texas during the oil crisis would still have gone bust. We track all of these factors, with a different emphasis on each, depending on how we see the overall market environment. For example, over the last two years, US stocks have been driven purely by earnings.
"If there were some kind of banking crisis, for example - although we do not see one on the horizon - liquidity would become an important factor. Similarly, if the US economy does begin to show signs of a significant slowdown, asset quality will be important."
The fund has two share classes - euro and dollar - Sherratt said, and hedging can be used to minimise currency risk incurred by the equity positions.
He said: "If, to take an unlikely example, we found ourselves with all our best ideas in Europe and our worst in the US, we would hedge out the market and currency risk."
The fund charges are 1.5% plus a 20% performance fee. The minimum investment is $500,000 or E500,000.
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