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
Financials fells in October, albeit they outperformed underlying equity markets which sold off towards the end of the month. Europe led the selloff over concerns that rising COVID-19 cases and hospitalisations would lead to further restrictions on economic activity and ultimately lockdowns. Against this background, the Trust’s net asset value rose by 0.6% while our benchmark index, the MSCI ACWI Financials Index, fell by 0.7%.
Our payment holdings were the biggest drag on performance over the month with holdings in PayPal Holdings and MasterCard falling on the back of broader weakness in technology shares. Conversely, US regional banks were very strong over the month, rising by around 15%, with holdings in the likes of SVB Financial Group and First Republic Bank, both Californian headquartered banks, being two of the biggest contributors to performance.
US bank third quarter results came in much better than forecast with loan loss provisions falling substantially versus the previous quarter. Fee income driven by investment banking revenues came in stronger, with the only negative being weaker net interest income reflecting some continued pressure on net interest margins, from interest rate cuts earlier in the year, as well as a reversal in the loan growth seen following the onset of the health crisis as companies have paid down debt.
US banks outperformed in October as US government bond yields rose over the month on the back of an increased expectation the Democrats would win both the White House and the Senate resulting in a bigger fiscal stimulus. This was seen to outweigh the negatives of higher corporate taxes and regulation, even though these would not be insignificant headwinds for the banking sector.
European banks that released their third quarter results before the month end, including Scandinavian, Swiss and UK banks, have shown similar trends to their US peers, in particular, benefiting from a sharp fall in loan loss provisions. Similarly, the number of borrowers on payment holidays has continued to fall sharply, reflecting the strong rebound in activity in the third quarter as restrictions imposed earlier in the year to counter COVID-19 were relaxed. Despite the concern around increasing COVID-19 cases, European bank shares also outperformed in October.
However, European insurers were particularly weak during the month with concerns rising regarding elevated catastrophe claims and additional business interruption losses associated with second lockdowns. Nevertheless, third quarter results for insurers continued to highlight the improved pricing environment including, for example, Hiscox which reported an accelerated rate improvement in the London market, while Chubb also reported results which beat analyst forecasts once more volatile items were stripped out.
Asian financials rose in October, similarly, outperforming underlying Asian equity markets and global financials. The overall macro environment has been improving in Asia added to which there is some evidence of better control of new COVID-19 infection cases than elsewhere globally which bodes well for the future recovery of the region’s economies. During the month, we saw some recovery in exports (South Korea, China, Taiwan and Singapore) again led by strength in north Asia with their bias to technology related exports.
Encouragingly, even south-east Asia saw the beginnings of a recovery in exports during the month although they remain materially weaker than north Asia. Third quarter results in India (the Trust’s largest exposure in the region) have been encouraging, with private sector banks reporting resilient asset quality, as collection efficiency returned to pre-COVID-19 levels, while profitability remains strong despite a slowdown in loan growth.
At the time of writing, Democrat Joe Biden is forecast to become President, albeit by a much smaller margin than previously forecast, while the Republican party is expected to retain control of the Senate. Against this background, US banks’ shares suffered some profit-taking from the recent rally on the basis there will be gridlock between the different arms of the US government resulting in any stimulus bill being smaller than had the Democrats also won the Senate.
Outside the shorter-term impact of the US election, the attractiveness of the sector is based around strong balance sheets and that banks will benefit from a cyclical recovery in their earnings as the global economy continues to recover over the next year, while insurance companies benefit from rising insurance rates and improvement in profitability as similar concerns about losses related to COVID-19 or otherwise abate.
Furthermore, as the recovery continues to take hold, when those financial companies that have been prevented from returning capital to shareholders restart buybacks and dividends it will be a positive for the sector. We see this as a question of when, not if. Some strategists also still argue that US government bond yields will rise as the recovery takes hold, even with a smaller stimulus bill, which would benefit our holdings in US banks if it happens. Against this background, valuations remain historically low, especially for bank stocks.
As a result, we took the opportunity to add to a number of our bank holdings over the month, both in the US, Europe and Asia. These included adding to holdings in DNB, BNP Paribas, HDFC Bank, One Savings Bank and Prosperity Bancshares. Against these purchases, we reduced our exposure to payment companies, reducing holdings in MasterCard and PayPal Holdings while also reducing holdings in Allianz and Marsh & McLennan, while we sold our holding in Citigroup.
9 November 2020
Nick Brind & John Yakas
Nick has managed the Trust since launch, he joined Polar Capital in 2010 and has 12 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.