Barclays’ (LSE:BARC) shares have delivered a 71% return over the past five years. But that doesn’t tell the whole story. There has been a great deal of turbulence and volatility during the period.
Nonetheless, a £20,000 investment in the bank then would be worth £34,200 today. That’s excluding dividends which would have likely contributed an additional £3,000.
A rollercoaster ride
The journey hasn’t been smooth. Barclays faced significant headwinds between 2020 and 2023, including pandemic-driven volatility, Brexit uncertainties, and the 2023 Silicon Valley Bank (SVB) collapse, which briefly dragged the sector into crisis.
Should you invest £1,000 in Dunelm right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Dunelm made the list?
The stock plummeted to a price-to-earnings (P/E) ratio of just 4.5 in early 2023, reflecting extreme pessimism. However, this proved to be a turning point. Barclays’ strategic overhaul —cost-cutting, capital reallocation and business streamlining — began restoring investor confidence.
By mid-2024, shares surged to decade highs, buoyed by falling interest rates and a brighter outlook for UK banks.
Why consider Barclays today?
The macroeconomic picture’s improving. Interest rates are no longer putting unmanageable pressures on customers, and falling rates also allow banks to unwind their strategic hedging practices.
Barclays’ structural hedge, worth more than £200bn, is expected to lock in £3.6bn in net interest income (NII) for 2025, with over 95% secured via executive derivatives. As older hedges (yielding ~1.5%) mature and refinance at current swap rates (~4.1%), Hargreaves Lansdown forecasts a multi-year uplift, adding £700m+ annually through 2026.
The hedge offsets deposit attrition and cushions rate cuts. In Q3 2024 alone, it delivered £1.2bn (66% to Barclays UK). With a 2.5-year average duration, the hedge ensures stable earnings, supporting Barclays’ target of more than 15% return on tangible equity target.
This is complemented by Barclays’ strategic shift, with the business redirecting risk-weighted assets (RWA) towards the most profitable part of the business — UK retail banking.
Barclays UK averaged a return on tangible equity (RoTE) of 19% between 2021-2023 despite only accounting for 21% of the bank’s RWA. Barclays also acquired Tesco’s banking arm in February 2024, further expanding operations in the area.
It isn’t risk-free
Things are definitely looking up for Barclays, and this has been reflected in the surging share price. However, it’s not a risk-free investment. Banks typically reflect the health of the economies they serve, and the UK’s GDP forecast is simply ‘ok’.
What’s more, Trump’s tariff policies, some of which are inflationary, could negatively impact the direction of interest rates in the UK. This could negatively impact the economy, loan demand, and customers’ financial health.
Long-term optimism
Barclays trades with a forward P/E ratio of 8.6, below its 10-year average of 9.1, suggesting room for revaluation. This is reaffirmed by its broader discount to the global finance sector. Moreover, its 2.8% dividend yield and share buyback programme also represent near-term catalysts.
Personally, I’m tempted to buy more, but this stock’s already one of my largest holdings.
