The $1.1 billion Perennial Value Australian Shares Trust has increased its exposure to the major bank shares, having moved to an overweight position in June.
Writing in its latest monthly report, the Trust said it views the banks as offering attractive valuations, having been sold off over the past year.
The Trust has already benefitted, with bank shares rallying an average of 4.1 per cent over the month of June.
Since hitting a multi-year low in mid-June, the Commonwealth Bank of Australia (ASX:CBA) share price has jumped over 10 per cent higher.
In the same period, National Australia Bank (ASX:NAB) shares have added 7 per cent, Westpac Bank (ASX:WBC) shares have added 8 per cent and ANZ (ASX:ANZ) shares are up 9 per cent.
The Trust had a solid month, matching the 3.2 per cent gain in its benchmark S&P/ASX 300 Accumulation Index.
Over the past year, the Trust has gained 8.2 per cent, under-performing its benchmark by 5 per cent. Since inception in March 2000, the Trust has returned 9.8 per cent per annum, beating its benchmark by 1.6 per cent.
During June, the Trust took profits and trimmed its holdings in a number of stocks which had performed strongly over recent times including Lendlease (ASX:LLC), Navigator Global Investments (ASX:NGI), Gateway Lifestyle (ASX:GTY) and Macquarie Group (ASX:MQG). The proceeds were used to increase its holdings in the major bank shares as well as introducing a number of new value ideas into the Trust.
Volatility to rise, but growth to continue
Whilst the Trust thinks stock market volatility will likely increase, driven by factors such as the ongoing trade war, the global economic backdrop continues to be positive, with all major regions delivering improved growth.
Domestically, it says that while the economy has been subdued, recent data is increasingly positive, with the Trust looking to benefit from being overweight in the large-cap, low-cost, financially-sound resources companies as well as in a range of quality industrial and financial companies which it says are trading on attractive valuations.
The Trust’s overweight positions include BHP Billiton (ASX:BHP), Nufarm (ASX:NUF) and Woodside Petroleum (ASX:WPL).
Interest rates to rise
Given the Trust’s positive views on the domestic economy, the Trust expects to see continued upwards pressure on interest rates.
Although the banks are independently lifting mortgage rates, the RBA continues to hold the cash rate at just 1.5 per cent, with some economists saying the risk is interest rates remain at that level until 2020.
In going overweight bank shares, Perennial Value Australian Shares Trust are clearly betting against falling house prices, increasing bad debts, decreasing housing credit, and the RBA standing pat.
In May, Martin Conlon, head of Australian equities at Schroders, warned that sustainable bank profits are likely to be some 25 per cent below current levels when normalised bad debts and an educated guess at penalties are taken into account.
Round one however, given what looks to be perfect timing when adding to their bank shares, goes to Perennial.