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 31 October 2019
Financials saw further outperformance in October as the rotation out of growth into value stocks led by bank shares continued, as bond yield saw a further recovery from the lows they hit in August and early September. The rotation was helped by progress in US-China trade talks and signs of a bottoming out in the slowdown in economic activity. Sterling rallied sharply as the UK Government came to a new agreement with the EU on Brexit offsetting the rally in equity markets.
Against this background the Trust’s net asset value fell 1.5% against our benchmark index, the MSCI World Financials + REIT Index, which fell by 2.4%. Our holdings in US banks were the biggest contributors to performance, in particular, those in JPMorgan, Bank of America and First Republic Bank, the latter on much better than expected results. Conversely our holdings in Arch Capital, Chubb and Citizens Financial Group were weak.
US banks rose 4.0% in the month (-1.2% after adjusting for the rise in sterling). As expected, the Federal Reserve delivered a 25bps rate cut in the month but signalled an ‘on-hold’ bias with the Chairman of the Federal Reserve, Jerome Powell, citing robust consumer spending, strengthening home sales and reduced geopolitical risks. Requiring a ‘material reassessment’ of their outlook to cut interest rates, market expectations on additional cuts in interest rates have fallen, while robust labour market data has reassured on the outlook for consumer spending (and its ability to offset weakness in the manufacturing segment).
US banks’ 3rd quarter results came ahead of expectations with better fee income and lower provisioning and costs helping to offset the headwinds from margin pressure. Large cap. banks reported an average 7bps net interest margin contraction in the quarter with asset yields falling 12bps while the cost of interest-bearing liabilities fell 4bps. Guidance implies we have now seen the peak level of sequential margin compression as more meaningful reductions in deposit costs come through in subsequent quarters.
Importantly, profitability remains strong (16% Return on Tangible Equity at large cap. banks) supported by benign asset quality while healthy capital levels (11.8% Tier 1) are leading to material capital return to shareholders (US large. cap banks total yield is >10%). In terms of our small and midcap bank holdings, earnings growth is being supported by continued strong levels of loan growth, for example First Republic Bank grew its loans by 19% and Silicon Valley Bank by 13% year-on-year, which is helping to offset the headwinds from margin compression.
European banks were not quite as strong in October rising by 3.1% (+0.1% in sterling). Sentiment has remained closely tied to developments in US-China trade talks as well as UK-EU Brexit negotiations. We are half-way through 3rd quarter results which have on average come in slightly ahead of expectations. With revenues facing headwinds across much of the region, the results highlighted the relative strength of Norwegian banking (which after the UK is our largest exposure in Europe) which is benefiting from a robust macro backdrop and upward loan repricing following interest rate increases.
The overall macro picture coming out of Asia remains subdued although there is some evidence of a recovery in exports. A lack of inflationary pressures has enabled a number of central banks to cut rates during the month. Added to which some countries cut reserve requirements for banks and we suspect that more cuts will be forthcoming. More encouragingly, countries are beginning to use fiscal measures (such as increased government spending and cuts in tax rates) to help boost growth. The latter boosts coupled with rate cuts should feed through into an improved macro picture towards the end of the year and we are more positive on the overall outlook than we were a few months ago.
The recent rotation out of growth stocks into value stocks, of which banks play a prominent part, is not surprising considering the latter’s underperformance. We have seen a number of pointers that suggest that markets are exhibiting less than their normal efficiency. Some of these are probably wishful thinking on our behalf, but the combination of them all would suggest that the rotation we have seen could carry on much further than investors are prepared for.
The failure of one of the UK’s most well-known fund managers and his firm rhymes with the sacking of a prominent value fund manager in 2000 at the peak of the TMT bubble. The valuations of some early-stage technology businesses appear to show little relevance to the underlying prospects of the businesses in question as highlighted by the failed IPO of WeWork and others. The extreme valuation differential of safe low volatility businesses to the market versus history and the discount that value stocks equally trade to the market vs history again has suggested that valuations are at or close to extremes.
Furthermore, we have also had inbound questions on the investability of US banks over concerns of the risk that US interest rates will inevitably become negative as they have in Europe and Japan. An investment trust with a focus on European value stocks has recently appointed a new manager with a growth mandate. Finally, we have been told of fund managers being scoffed at in a meeting by a fund buyer for investing in a paper company, a classic old-economy value stock. All contrarian signals.
Against this background we reduced our exposure to a number of our more defensive holdings, but also our holding in Blackstone, the alternative asset manager, following a very strong rally in its share price this year, in part on it becoming eligible for inclusion in indices. Conversely, we increased our exposure to emerging market banks, adding to a number of holdings, including HDFC Bank and Bank Central Asia while also starting new holdings in Mexico and Brazil. As a result, gearing has increased to around 4%.
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.