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
As at 29 May 2020
Equity markets rallied further in May despite continued weak economic news and almost universal scepticism about the rally. Nevertheless, the lack of a spike in infections following the relaxation of lockdowns and an expectation of further fiscal support from governments is seen as very positive news. Against this background, financials lagged the rise despite benefiting from a sharp rally from growth stocks into value stocks in the last week of the month. The Trust’s net asset value rose 7.1% in May, while our benchmark index, the MSCI ACWI Financials Index, rose by 3.4%.
The biggest contributors to performance over the month were our holdings in payment companies, in particular PayPal Holdings and MasterCard, followed by some of our non-life insurance holdings such as Arch Capital. Detractors included some of our Indian holdings, namely HDFC Bank and Axis Bank. AIA Group was also weak, exacerbated by the decision by the Chinese government to announce it would be imposing a new controversial security law on Hong Kong.
US financials outperformed over the month with non-life insurance stocks supported by evidence of an acceleration in rate increases (the CIAB Commercial P&C Market Index showed increases of close to 10% year on year in the first quarter). The data showed broad-based repricing across lines of business. Following the increase in primary and retrocessional rates, we are also now seeing rate hardening in reinsurance rates, with data from Hyperion-X showing the highest rate of growth since 2002 and the third highest overall increase since 1992.
Payment companies as highlighted above were particularly strong in May. There is a growing recognition that the pandemic is likely to prompt lasting behavioural changes which will accelerate the shift away from cash with payment companies a key beneficiary of this structural trend (PayPal’s net new active accounts averaged 250 thousand a day in April, a growth rate of 135% year on year). Recent data published by Visa also points to a significant improvement in volume trends in May, likely supported by stimulus cheques as well as an easing in restrictions, with a particularly strong recovery in debit volumes now up year on year having been down in April.
Emerging market financials rose over the month across most countries aside from China and India. Sentiment on China was affected for the reason highlighted above, as the approval by the National People’s Congress of a controversial security law for Hong Kong is expected to undermine the city’s autonomy and could lead to the US decision to withdraw Hong Kong’s special status as a separate customs territory. There is also a clear risk of an escalation in rhetoric between the US and China in the run-up to the November US presidential election which points to continued uncertainty. The Trust is underweight Hong Kong and China with our exposure primarily in regionally focused companies such as AIA Group and Prudential.
European financials lagged the rally in May with the banking sector relatively weak. The European Commission proposed a €750bn Recovery Fund which would include €500bn in grants to be dispersed over 2021- 24 with allocations skewed towards southern Europe. The proposal has the backing of Germany and France and consequently has a greater chance of approval. If passed (requiring agreement from all 27 member states), the fund is politically and economically significant for the region as it would involve common borrowing to provide grants weighted towards southern European countries in recognition that they face a disproportionately large impact from the pandemic. Our only exposure here is to Banca Generali.
Looking forward it is still too early to tell the level of provisions banks and consumer finance companies will have to take over the coming 6-12 months. US banks have been much quicker than others to provide for loan losses. However, JP Morgan, for example, signalled on their first quarter analyst call that they would have to take further significant provisions in the second quarter as the economy had deteriorated much more than expected when they set the level of provisions they deemed prudent to cover the recession. While they are not alone, conversely the fiscal largesse of governments and the actions of central banks will dampen losses that banks and consumer finance companies have to take suggesting loan losses during the recession will not be as bad as other less deep recessions. The relief provided to borrowers, whether from direct cheques to the unemployed, money to cover furloughed employees, grants, guaranteed loans, mortgage holidays etc will be turned off at some point over the coming months and defaults will likely pick up sharply.
Against that background it is worth considering the actions of BlackRock’s largest shareholder, PNC Financial Services, which we own in the Trust and is one of the largest banks in the US. In May it sold its 22% stake to raise around $14bn. PNC’s management team is seen as astute and was one of the winners of the global financial crisis buying troubled National City, a Cleveland, Ohio-headquartered regional bank with $150bn in assets in the depths of the crisis. They believe this crisis will also provide significant opportunities to buy distressed assets.
In the short term, until we see more evidence of defaults, the sector could rally from the historically low valuations it is currently trading at as the economic outlook continues to improve and we start to see a sharp rebound in activity. Whether any short-term rally is sustainable only time will tell but the longerterm value in the sector remains compelling which will be realised when economies and interest rates start to return to a more normalised environment.
5 June 2020
Nick Brind & John Yakas
Nick has managed the Trust since launch, he joined Polar Capital in 2010 and has 25 years of industry experience.
John has managed the Trust since launch, he joined Polar Capital in 2010 and has 31 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.