In the private client and wealth management sector, investors like to see recognisable household names, offerings and brands, providing the potential for ratings to stay stronger for longer.
The current climate is now one of rising interest rates. With its interest rate sensitivity, Tilney has a positive stance on financials. Overall, this represents about 21 per cent by market capitalisation and includes a number of the larger, liquid, household name investments. UK banks are about 12 per cent of the UK market with HSBC a key constituent.
I see HSBC as a particular beneficiary of rising international rates. Its valuation is not demanding and has scope for further outperformance. I have been impressed by the actions taken by Lloyds Bank to resolve its legacy issues ahead of its peers.
Lloyds will be a beneficiary of rising UK interest rates and offers an attractive 6 per cent dividend yield with growth of 10 per cent in consensus expectations. The shares are trading at 1.1 times book value, which does not full reflect its capital ratio and returns profile.
The insurance sector, which has an element of index gearing, benefits from stronger equity markets. That said, there are a range of opportunities across the sector, along with above-average dividend yields.
Aviva is making good progress on portfolio rationalisation while offering a 5.2 per cent yield; Legal & General has a strong, largely domestically focused business and offers a 6 per cent yield.
The oil sector has been under a cloud for a while due to a range-bound oil price. Recent geopolitical tensions and natural weather events have prompted a recovery in share prices. While not overly bullish on the oil price as a house, Tilney likes the above 6 per cent dividend yields offered by BP and Shell.
Before dinner parties were dominated by social media, status updates and videos of cats dressed as penguins, the housing market was the prime topic. That said, investor sentiment still swings around on the housebuilders.
From a fundamental viewpoint of not enough supply and plenty of demand, Tilney stays positive on the sector prospects. The balance sheets have been sorted and there are clear strategies focused on progressive dividends and returning excess cash, making these exciting investment opportunities.
The three largest constituents all yield above 5 per cent while the smaller Crest Nicholson offers 6 per cent. A variation on the theme would be Galliford Try, which offers a 7 per cent yield. Granted it has had some contracting issues, but unlike its peers, it looks to have capped them quickly. The company has a clear plan to grow its housing margins, expand its partnerships offering and be selective in construction.
The trend towards greater digitisation and connectivity continues to provide a healthy medium-term outlook for the telecoms sector. Some investors are understandably twitchy about BT, following its Italian issues and slower UK spend, but with its strong local presence and established infrastructure, I see potential for better times ahead.
