Why are FTSE 100 fund managers so negative on Lloyds Banking Group (LSE: LLOY) shares right now?
Surely, with them being so cheap, they should all have bought in and pushed the price up? But it only takes a quick look at the five-year price chart to show they haven’t done this.
Fund performance
Might this say something about why the majority of fund managers fail to beat the stock market average over the long term?
They do face a real problem here. It’s because they invest for folk who don’t always have a long-term outlook. And they have to report how they’re doing, typically every three months.
So, do they want to show that they hold losing stocks at the end of each quarter? No. They want to show stocks that are on the way up, or investors might pull their funds and go elsewhere.
Tough outlook
And if the funds hold a lot of bank shares this year? Well, high inflation, a tough economy, the prospect of a recession? Yes, banks could easily fall in 2023. I can see why people might not want their cash in the sector right now.
It doesn’t matter if Lloyds shares have been paying decent dividends. Or that there’s a forecast yield of 5%-6% (depending on who’s estimating it) and rising. Or that the shares are on a super low price-to-earnings (P/E) ratio of six and falling.
We’ve seen it many times. If there’s short-term risk, investors can drop a sector like a hot brick and stash their money somewhere they think is safer. And a lot funds will do the same.
ISA advantage
But that gives ISA investors who are in it for the long term a big advantage. We can buy shares, and just hang on to them for 10 years, 20 years, however long. And just keep on taking the dividends.
In fact, I hope Lloyds shares stay cheap so I can buy more in the future, and keep my overall yields high. There is still that big risk that Lloyds will have a tough 2023 and could fall even further, mind.
Sorry, did I say risk? No, I mean opportunity.
Buy Lloyds shares?
So would I invest a £20k ISA allowance in Lloyds shares? If I had that much ISA cash, yes, I would. But I want diversification too. So how can I do that?
I see diversification as the best way to provide safety from stock market slumps. Often, a specific sector can crash, as we saw with the 2008 bank crisis.
So I already started my ISA with some investment trust shares. I went for trusts with different strategies in different markets. And that gives me diversification before I even think of putting a whole year’s allowance into one stock.
Building diversification
Then, each year, I’d just put my cash into a different stock in a different sector. The diversification should build up nicely as the years go by.
And even a 5% dividend yield from Lloyds would pay me a very tasty £1,000 per year. And that, along with income from previous buys, would go towards my next year’s ISA allowance.
