Our portfolio is invested in banks, insurance companies and energy companies.

Banks typically outperform the market when interest rates go up. This is logical because banks make more interest revenue when rates are high.

In 2024, I think banks can outperform even if central banks cut interest rates.

Recently, the relationship between bank shares and interest rates has not been the traditional one.

A couple of years ago, the market became (rightly) worried that high rates would cause banks’ loan book quality to deteriorate. With high interest rates, more people would have difficulty paying back their loans, and banks would have to write them off.

That has not happened. Unemployment has stayed low, so loans to individuals have experienced low default rates.

More recently, investors have expressed concern about the exposure of banks to commercial property. Loans on office buildings, in particular, have become problematic because of the trend towards home working.

The good news is that European banks have only 5% of their loan books exposed to commercial property. A bigger concern is US regional banks, which have 20% of their loan books in commercial property. This is one reason I have no US regional banks in the portfolio.

European banks are trading at cheap valuations. In the portfolio, Santander is on a 5.3x P/E (price-to-earnings, 2025E), Intesa on 6.5x, ING on 6.3x, BNP on 5.7x. Normally banks like these trade closer to 9x P/E.

I continue to hold the banks because of their low valuation and because I believe the economy will do well in 2024.

2024 performance
@triangulacapital +6.8%
$SWDA.L +6.3%

Portfolio changes
ASR Nederland was sold following a tepid Q4 earnings report. It was replaced by Eni.