Top up –  Close Brothers

We continue to prefer our banking exposure to come via a basket of high-quality niche operators rather than through the more diversified high street banks. Our holdings in Close Brothers and Provident Financial are good examples of this. Close’s modern take on merchant banking –  a highly disciplined, conservatively-funded approach to small ticket, secured lending – has seen it thrive and survive through many economic cycles. Whilst the latest upswing is leading to new entrants and growing competition, the company’s disciplined and patient approach should, once again, win-out. We think the recent question marks around the group’s short-term growth profile provides a compelling opportunity to top-up our holding.

Reduce – Provident Financial

The UK’s leading non-standard lender is in rude health. Vanquis, its subprime credit-card business, continues to grow in a rapid but prudent fashion. Furthermore, new initiatives like ‘Satsuma’ (short-term loans) and ‘Glo’ (guarantor loans) open up exciting new avenues of growth for this 135 year old company. However, the company’s exceptional progress has not gone unnoticed by the market, and its valuation has risen over recent years. A lack of black clouds on the horizon stops us from being outright sellers but concerns around its valuation may limit the share price growth from here. Given this, we have been trimming our holding into strength.

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