Polar Capital Global Financials
Trust plc (LSE:POLR)
The Company’s investment objective is to generate for investors a growing dividend income together with capital appreciation.
The Company will seek to achieve its objective by investing primarily in a global portfolio consisting of listed or quoted securities issued by companies in the financials sector operating in the banking, insurance, property and other sub-sectors.
Investing in the Trust and Shareholder Information
Launch Date 01 July 2013
Year End 30 November
Half Year End 31 May
Results Announced Late Jan/Feb
Next AGM Late April
Trust Term Fixed life to May 2020
Listed London Stock Exchange
The ordinary shares are listed and traded on the London Stock Exchange. Investors may purchase shares through their stockbroker, bank or other financial intermediary.
16 Palace Street, London SW1E 5JD
HSBC Plc is the Depositary and provides global custody of all the company’s investments
Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA: www.shareview.co.uk
London Stock Exchange PCFT
The entire investment portfolio is published in the annual and half year report as well as being announced to the London Stock Exchange on a quarterly basis.
It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediately preceding 12 months is available upon request.
Note: Totals may not sum due to rounding.
Your capital is at risk. You may not get back the full amount you invested. Please note the Important Information at the end of this document and the Investment Policy and full
Risk Warnings set out in the Prospectus, Annual Report and/or Investor Disclosure Document.
The shares of investment trusts may trade at a discount or a premium to Net Asset Value for a variety of reasons including market sentiment and market conditions. On a sale you could realise less than the Net Asset Value and less than you initially invested.
Subscription shares will have a dilutive effect on ordinary shares when the Net Asset Value (NAV) is greater than the conversion price.
The entire investment portfolio is published in the annual and half year report as well as being announced to the London Stock Exchange on a quarterly basis. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediately preceding 12 months is available upon request. Note: Totals may not sum due to rounding.
Fund Manager Comments
After adjusting for a rally in sterling, equity markets were lower over the month despite their strong performance. Financials lagged underlying equity markets as concern around a rise in COVID-19 cases globally resulting in renewed restrictions in some countries and a slowdown in some economic indicators hit sentiment. Against this background the Trust’s net asset value fell 2.3% while our benchmark index, the MSCI ACWI Financials Index, fell by 3.4%
The biggest contributors to performance were our holdings in PayPal Holdings, a payments company, Keppel DC REIT, a Singaporean REIT focused on data centres, and Hong Kong Exchanges & Clearing. Holdings in Blackstone, a US alternative asset manager, AIA Group, an Asian life assurance company, and HDFC Bank, an Indian bank, were the biggest drag on performance.
US banks announced second quarter results which highlighted both the strength of their balance sheets and the uncertainty about the outlook. Underlying earnings benefited from the exceptionally strong investment banking and trading revenues which helped offset weaker net interest income which was impacted by lower interest rates and loan books shrinking in the last quarter as companies and individuals repaid loans.
Banks significantly increased their provisions on the back of a more negative view on the outlook for the US economy than when they released first quarter results, despite relatively little evidence of asset quality issues so far, taking total reserves to $165bn for the largest 20 banks. This level of reserving assumes unemployment will be around 10% at the end of the year before falling to 7.5% at the end of 2021 with a commensurate fall in GDP. As a result, reserves now stand up to 5x that of the current level of non-performing assets.
Highlighting the exceptional scenario, Bill Demchak, CEO and Chairman of PNC Financial Services, summed up the outlook, saying: “And so Jamie [Dimon, CEO and Chairman of JP Morgan] went on this rant, and he’s exactly right. We see consumers flush with cash. We see no delinquencies. We see consumer spending increasing. And it’s all at the moment based on Government writing a check. And I just don’t know how this plays out.”
The tailwinds in place for e-commerce-focused payment companies were highlighted by PayPal’s strong second quarter results during the month. PayPal’s active customer accounts rose 21% over the year while total payment volumes rose 30%. Management guidance pointed to continued positive momentum in the second half of the year. The health crisis has accelerated the shift online across industries and PayPal is positioning itself to engage with customers at all stages of commerce.
European financials lagged during the month on concerns that a rise in infection rates would lead to additional containment measures in the region. We are halfway through second quarter results for the banking sector which have highlighted pressure on core revenues from lower rates, higher provisioning and stronger capital. While most results have come ahead of expectations, the sector underperformed in the month with continued uncertainty on both asset quality and the extent to which it will deteriorate, once government stimulus and regulatory forbearance fades, and capital return. As expected, the ECB extended the ban on dividends and buybacks until January 2021.
The second quarter results season for the Asian banking sector has started with a number of banks in Thailand and India. Broadly, we are seeing similar pressure on net interest income as interest rates come down although strong deposit inflows at better managed franchises are helping offset this, while the strong trading revenues during the quarter have enabled higher preemptive provisioning. Indian banks’ results showed how some stronger banks, such as HDFC Bank, are capitalising on weakness elsewhere and we have seen Bank Central Asia in Indonesia, a well-regarded private bank which is another key holding in the region, benefit similarly.
The crisis has had a positive impact on incumbents in the banking sector as regards their resilience and being able to interact with clients digitally or otherwise, as well as be a conduit for loans guaranteed by the government. The crisis will also show which of the new fintech entrants have solid business models. We have always like payments businesses, but been very wary about those that take balance sheet risks, especially those with a weak funding profile.
Not surprisingly, some of the latter have struggled. On Deck Capital, a US fintech lender, succumbed in July to a bid over 90% below the price it IPO’d at in 2014. Metro Bank, which has its own well publicised issues, announced at the beginning of August it had acquired RateSetter, a UK peer-to-peer lender, for a fraction of what its investors had sunk into the business, and Monzo, the bank with the eponymous red card, has had to warn in its accounts of a material uncertainty that it can continue as a going concern.
Despite the insouciance towards the sector in recent months, we have seen some more positive comment around the opportunity in the sector. The bulls argue that banks are very cheap, have sufficient capital to withstand the current downturn and on any normalised earnings offer significant value trading at depressed forward-earnings multiple over two years as evidenced by the very low P/B ratios they are trading on. The bears argue there is a bigger risk of higher loan losses that have yet to materialise.
While there is undoubtedly uncertainty in the short term, we are finding attractive recovery opportunities within non-life insurance supported by a hardening rate environment while the Trust is also positioned to benefit from the structural growth opportunities in the payments sector, savings platforms and in emerging markets. Banks may remain unloved for the time being, but Jamie Dimon has argued JP Morgan “will not lose [the] kind of money” assumed in stress tests which, if correct, would suggest substantial upside in bank share prices. It would seem Warren Buffett agrees as he has increased his stake in Bank of America by around $2bn in recent weeks.
6 August 2020
Nick Brind & John Yakas
Nick has managed the Trust since launch, he joined Polar Capital in 2010 and has 26 years of industry experience.
John has managed the Trust since launch, he joined Polar Capital in 2010 and has 32 years of industry experience.
Important Information This document is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Global Financials Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price. It is not designed to contain information material to an investor’s decision to invest in Polar Capital Global Financials Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document, the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this document is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Statements/Opinions/Views All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capital. This material does not constitute legal or accounting advice; readers should contact their legal and accounting professionals for such information. All sources are Polar Capital unless otherwise stated.
Third-party Data Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.
Holdings Portfolio data is “as at” the date indicated and should not be relied upon as a complete or current listing of the holdings (or top holdings) of the Company. The holdings may represent only a small percentage of the aggregate portfolio holdings, are subject to change without notice, and may not represent current or future portfolio composition. Information on particular holdings may be withheld if it is in the Company’s best interest to do so. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediately preceding 12 months is available upon request. This document is not a recommendation to purchase or sell any particular security. It is designed to provide updated information to professional investors to enable them to monitor the Company.
The following benchmark index is used: MSCI World Financials + Real Estate Net Total Return Index. This benchmark is generally considered to be representative of the Financial Equity universe. This benchmarks is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.msci. com for further information on these indices. Comparisons to benchmarks have limitations as benchmark’s volatility and other material characteristics may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Fund may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Fund may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Fund is similar to indices in composition or risk. The benchmark used to calculate the performance fee is provided by an administrator on the ESMA register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.
Regulatory Status Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is registered as an investment adviser with the US Securities & Exchange Commission (“SEC”). A list of members is open to inspection at the registered office, 16 Palace Street, London, SW1E 5JD. FCA authorised and regulated Investment Managers are expected to write to investors in funds they manage with details of any side letters they have entered into. The FCA considers a side letter to be an arrangement known to the Investment Manager which can reasonably be expected to provide one investor with more favourable rights, which are material, than those afforded to other investors. These rights may, for example, include enhanced redemption rights, capacity commitments or the provision of portfolio transparency information which are not generally available. The Fund and the Investment Manager are not aware of, or party to, any such arrangement whereby an investor has any preferential redemption rights. However, in exceptional circumstances, such as where an investor seeds a new fund or expresses a wish to invest in the Fund over time, certain investors have been or may be provided with portfolio transparency information and/or capacity commitments which are not generally available. Investors who have any questions concerning side letters or related arrangements should contact the Polar Capital Desk at the Registrar on 0800 876 6889.
Information Subject to Change The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Forecasts References to future returns are not promises or estimates of actual returns Polar Capital may achieve. Forecasts contained herein are for illustrative purposes only and does not constitute advice or a recommendation. Forecasts are based upon subjective estimates and assumptions about circumstances and events that have not and may not take place.
Performance/Investment Process/Risk Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Factors affecting the Company’s performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Company’s investment policy allows for it to enter into derivatives contracts. Leverage may be generated through the use of such financial instruments and investors must be aware that the use of derivatives may expose the Company to greater risks, including, but not limited to, unanticipated market developments and risks of illiquidity, and is not suitable for all investors. Those in possession of this document must read the Company’s Investment Policy and Annual Report for further information on the use of derivatives. Past performance is not a guide to or indicative of future results. Future returns are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), or guaranteed by any bank, and may lose value. No investment process or strategy is free of risk and there is no guarantee that the investment process or strategy described herein will be profitable.
Allocations The strategy allocation percentages set forth in this document are estimates and actual percentages may vary from time-to-time. The types of investments presented herein will not always have the same comparable risks and returns. Please see the private placement memorandum or prospectus for a description of the investment allocations as well as the risks associated therewith. Please note that the Company may elect to invest assets in different investment sectors from those depicted herein, which may entail additional and/or different risks. Performance of the Company is dependent on the Investment Manager’s ability to identify and access appropriate investments, and balance assets to maximize return to the Fund while minimizing its risk. The actual investments in the Company may or may not be the same or in the same proportion as those shown herein.
Country Specific Disclaimers The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”) and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in “offshore- transactions” within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.