Banks now largely "fit for purpose" says de Blonay

Investor confidence in financial stocks is restored, with the MSCI AC World Financials Index up 149.9 per cent from its post-Lehman low point in March 2009 (Source: Bloomberg, 9 March 2009 to 30 August 2013). However, Mr de Blonay says challenges still remain for banks. "Even if the nascent economic recovery bodes well for the sector, the global imbalances sparked by years of ultra-low interest rates could prove tricky to negotiate while the issue of banks that are 'too big to fail' has yet to be addressed."

Nevertheless, with most banks now well capitalised, he says we can expect a growing number of them to boost the amount of cash they return to shareholders, and for some of them to resume paying dividends.

It is those banks with growing payout ratios that Mr de Blonay favours in Jupiter Opportunities Fund's portfolio - as long as they are attractively priced. "Other banks are in the process of undergoing extensive restructuring in the wake of the financial crisis and these appeal to us for their recovery potential," he says.

The fund has underperformed its benchmark the MSCI ACWI/Financials NR USD over the past three years. However, Mr de Blonay says: "It is a fund that is very different in look and feel from five years ago when cash was king and owning defensive stocks was vital to resist the downturn in the global economy." Even over the past month the portfolio has changed significantly.

Half of the portfolio is exposed to various types of restructuring stories. For example, Lloyds is in his top five holdings, whereas at the end of July it was outside his top 10. "Lloyds is today halfway to where it wants to be - a national leader in lending. It is transparent and well capitalised. It will start paying out profits to shareholders. It's a very straightforward UK economy proxy," he says.

"Citigroup and Morgan Stanley have only started restructuring in the past six to 12 months," he says. "We still think they are offering good value to investors."

The other half is exposed to growth and yield. A key story in the growth section of his portfolio is credit companies such as Visa and MasterCard. "We think the digitalisation of the payment process is a 10-year structural growth story," he explains. "More and more of us will order groceries, clothes and plane tickets through the internet. We think this is a very important thematic that the financial sector will benefit from."

He also has significant exposure to high-yield stocks. "These companies have finished the restructuring process and are now high-yield income stocks. They are leaders in what they do with a high dividend policy attached." An example of this theme is his holding in Bank Cantonal Vaudoise in Switzerland. "It has done more than six to seven years of restructuring. Having sold out of investment banking it now only focuses on lending in one region of Switzerland. The company offers investors a high yield of 7 per cent on a very secure, stable and recurring business."

A year ago, the fund had a 25 per cent stake in emerging markets. However, Mr de Blonay said he sold out of emerging markets on the first signs that the Fed was considering tapering its quantitative easing programme. "So far we've timed the correction in emerging markets well," he says. "The challenge is to time the return. We still have a bit of Japan and China but nothing in India, Brazil, Russia or Southern Pacific Asia. We are looking for a good entry point."

Jupiter Financial Opportunities Inc (ISIN: GB0004790191)

Fund performance (source: Jupiter)

Note: *Benchmark is MSCI All Country World Financials Index

Top 10 holdings (as at 31 August 2013)

Geographical breakdown (as at 31 August 2013)