Challenger banks are small banks that are set up with the intention of competing for business with larger, more traditional banks. They have competitive advantages in the buy-to-let and small- and medium-sized enterprise space, where they are more nimble decision makers than their larger peers.
The UK has a robust challenger banking sector, spanning both retail and business lenders, and the outlook for the sector continues to strengthen as stocks continue to rebound from the early-2016 economic slowdown scare, while their price-to-book valuations remain very low relative to the returns they are generating.
We retain conviction in Aldermore, Shawbrook and OneSavings Bank in particular, as all three are continuing to produce strong results and are delivering on expectations. These three newer and leaner challenger bank entrants are also well equipped to serve the small- and medium-sized businesses that big banks are turning away.
Georgina Brittain is portfolio manager of the JPM UK Smaller Companies Fund.
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