The Motley Fool

Lloyds shares: opportunity or warning?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A Lloyds tech engineer works on the bank's digital platform
Image: Lloyds

Having done well over the last 12 months, Lloyds (LSE: LLOY) shares lost their mojo today. Its 4% fall is greater than the roughly 2% tumble in the FTSE 100 index as a whole.

Is this an opportunity for those like me who aren’t already invested or are there better options out there?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Lloyds shares: UK bellwether

It’s clear that Lloyds has been caught up in the concern surrounding rising Covid infections in the UK. Unfortunately, this is the nature of the beast with the bank as it’s seen as a bellwether for the UK economy. And right now, the recovery of that economy is under question. The worry, in addition to rising infection levels and hospitalisations, is that too many people simply can’t work as a result of needing to self-isolate.

We won’t know the full impact of Boris Johnson’s decision to remove restrictions for a while. Professor Neil Ferguson believes the optimistic outlook is a peak of this latest wave of infections around August to mid-September. Whether we see further downward pressure on Lloyds shares in the meantime is hard to say. However, we do know that the market isn’t a fan of uncertainty.

As always, deciding if this represents an opportunity or not depends on my risk tolerance. For me, there’s a potentially safer way of making money from the sector, in good times and bad. Step forward the Polar Capital Global Financials Trust (LSE: PCFT) — the only one of its kind listed on the UK stock market.

A safer alternative?

Over the last year, its share price is up 83% — getting on for double what Lloyds shares have achieved. Importantly, these numbers take into account today’s drop. 

One reason is the trust’s global reach. Almost 45% of its assets are invested in US financial stocks. Only 11% or so of its money is invested in UK shares. While banks make up the lion’s share of holdings, insurance firms and software providers also feature. This ‘safety in numbers’ approach has clearly worked over the last 12 months.

On the downside, PCFT has a high ongoing charge of 1.09%. Naturally, I wouldn’t face such a fee if I just bought and held Lloyds shares (apart from platform costs). The diversified nature of the trust also means that I won’t be able to capture much of the big uplift to UK banks’ (and especially Lloyds) share prices that might happen once Covid is knocked for six. This is the concentration vs diversification quandary that Warren Buffett has frequently commented on. 

Perhaps most importantly, Lloyds shares aren’t held by the trust. So, I would need to consider whether Lloyds shares could outperform PCFT going forward. If so, and I was comfortable with just owning one stock, it would make sense to back Lloyds.

Time to buy?

I tend to steer clear of buying banking stocks directly. Even in normal times, their complex nature makes me think I’d struggle to pick a winner. As implied above, the sector is also dependent on so many factors out of its control. Still, I do think the Polar trust offers a more palatable way for me to play the eventual recovery.

With things potentially getting worse before they get better, however, I’m continuing to give Lloyds shares a wide berth for now. I’d take today’s share price action as a warning.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.