Polar Capital Global Financials Trust plc (the "Company"): The Company is an investment company with investment trust status and its shares are excluded from the Financial Conduct Authority’s (“FCA”) restrictions on the promotion of non-mainstream investment products. The Company conducts its affairs, and intends to continue to conduct its affairs, so that the exemption will apply.
The Company is an Alternative Investment Fund under the EU's Alternative Investment Fund Managers Directive 2011/61/EU as it forms part of UK law by virtue of the European Union (Withdrawal) Act 2018.
The Investment Manager: Polar Capital LLP is the investment manager of the Company (the "Investment Manager"). The Investment Manager is authorised and regulated by the FCA and is a registered investment adviser with the United States' Securities and Exchange Commission.
Key Risks
- Investors' capital is at risk and there is no guarantee the Company will achieve its objective.
- Past performance is not a reliable guide to future performance.
- The value of investments may go down as well as up.
- Investors might get back less than they originally invested.
- The value of an investment’s assets may be affected by a variety of uncertainties such as (but not limited to): (i) international political developments; (ii) market sentiment; and (iii) economic conditions.
- The shares of the Company may trade at a discount or a premium to Net Asset Value.
- The Company may use derivatives which carry the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions.
- The Company invests in assets denominated in currencies other than the Company's base currency and changes in exchange rates may have a negative impact on the value of the Company's investments.
- The Company invests in a concentrated number of companies based in one sector. This focused strategy can lead to significant losses. The Company may be less diversified than other investment companies.
- The Company may invest in emerging markets where there is a greater risk of volatility than developed economies, for example due to political and economic uncertainties and restrictions on foreign investment. Emerging markets are typically less liquid than developed economies which may result in large price movements to the Company.
Important Information
Not an offer to buy or sell: This document is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, and under no circumstances is it to be construed as a prospectus or an advertisement. This document does not constitute, and may not be used for the purposes of, an offer of the securities of, or any interests in, the Company by any person in any jurisdiction in which such offer or invitation is not authorised.
Information subject to change: Any opinions expressed in this document may change.
Not Investment Advice: This document does not contain information material to the investment objectives or financial needs of the recipient. This document is not advice on legal, taxation or investment matters. Prospective investors must rely on their own examination of the consequences of an investment in the Company. Investors are advised to consult their own professional advisors concerning the investment.
No reliance: No reliance should be placed upon the contents of this document by any person for any purposes whatsoever. None of the Company, the Investment Manager or any of their respective affiliates accepts any responsibility for providing any investor with access to additional information, for revising or for correcting any inaccuracy in this document.
Performance and Holdings: All data is as at the document date unless indicated otherwise. Company holdings and performance are likely to have changed since the report date. Company information is provided by the Investment Manager.
Benchmark:The Company is actively managed and uses the MSCI ACWI Financials Net TR Index as a performance target and to calculate the performance fee. The benchmark has been chosen as it is generally considered to be representative of the investment universe in which the Company invests. The performance of the Company is likely to differ from the performance of the benchmark as the holdings, weightings and asset allocation will be different. Investors should carefully consider these differences when making comparisons. Further information about the benchmark can be found www.mscibarra.com.
Third-party Data: Some information contained in this document has been obtained from third party sources and has not been independently verified. Neither the Company nor any other party involved in compiling, computing or creating the data makes any warranties or representations with respect to such data, and all such parties expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained within this document.
Country Specific Disclaimers
United States: The information contained within this document does not constitute or form a part of any offer to sell or issue, or the solicitation of any offer to purchase, subscribe for or otherwise acquire, any securities in the United States or in any jurisdiction in which such an offer or solicitation would be unlawful. The Company has not been and will not be registered under the United States Investment Company Act of 1940, as amended (the “Investment Company Act”) and, as such, 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 Company 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 in this document, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
Further Information about the Company: Investment in the Company is an investment in the shares of the Company and not in the underlying investments of the Company. Further information about the Company and any risks can be found in the Company’s Key Information Document, the Annual Report and Financial Statements and the Investor Disclosure Document which are available on the Company's website, found at: https://www.polarcapitalglobalfinancialstrust.com
Fund Manager Commentary As at 29 November 2024
Market review
The US dominated events in November and the election of Donald Trump and Republicans taking control of both houses of Congress led to a sharp rally in US equities as investors warmed to the prospect of lower taxes, less regulation and an expansionary fiscal policy. Conversely, with concerns around the impact of tariffs, non-US equities made only marginal gains and lagged US equities by 7.2%. Against this background, financials performed strongly, with the MSCI All Country World Financials Index rising 7.8% as financials are seen as one of the biggest beneficiaries of the change in administration. In comparison, the Trust’s net asset value rose by 7.6% with positioning in the US being the biggest drag on performance.
US Financials
US financials rose 12.2%, the result being that over the last two months they have erased the balance of the underperformance of the last 2 years against non-US financials, with the underperformance post the US regional banking crisis in March of 2023 having already been unwound that year. Unsurprisingly the largest rally came in banks, consumer finance companies and asset managers while payment companies and insurance companies lagged the rally, with some companies in the latter two falling over the month.
The expectation that US interest rates would be cut this year, underpinning an increased expectation for a soft landing, has been a positive for the sector. For banks it has been the improving outlook for net interest margins, as deposit costs fall, and therefore net interest income. Furthermore, a stronger economy reduces the risk of a rise in defaults on loans, as with consumer finance companies which are more susceptible to changes in unemployment, while investment banks and asset managers benefit from the tailwind of higher equity markets and a pick-up in M&A activity.
Trump is expected to reduce corporate taxation and US financials being more domestically focused will be a relative winner. He is also expected to reduce the burden of financial regulation, for example by making leadership changes at federal regulatory agencies and the Federal Trade Commission, which is currently led by Democratic Party appointee Lina Khan. This creates a favourable backdrop for financials, and for banks a lower rise in capital requirements than had been proposed. It is also expected to lead to increased M&A activity, and we used the opportunity to add to a number of our US holdings as well as start new positions in a couple of larger regional banks, at the expense of reducing holdings elsewhere in the portfolio.
European M&A
There was increased M&A activity across European financials in November, with UniCredit making an all-share offer for Banco BPM at only a small premium to its share price. This followed Banco BPM itself making an offer for Anima, an Italian asset manager, in which it already had a large stake and a holding in the Trust. In the UK, it was confirmed that Aviva had made a bid for Direct Line Group, at c250p per share, equivalent to £3.3bn. While both offers were rejected, these actions follow a year of heightened M&A activity, with BBVA, second largest Spanish bank, looking to buy Banco de Sabadell, Nationwide Building Society’s acquisition of Virgin Money UK, and Coventry Building Society’s acquisition of the Co-operative Bank.
Banco BPM’s offer for Anima was predicated on the use of the “Danish Compromise”. The Danish Compromise is so-called as it was a temporary rule, brought in when Denmark held the presidency of the EU in 2012, that allowed banks under certain circumstances to have lower capital requirements if they owned an insurance business and French banks would have had to raise capital without it. Consequently, the potential acquisition of Anima should be very accretive, and it follows on from BNP Paribas announcing the purchase of AXA Investment Managers, in August, via its insurance business, again using the same treatment for capital.
UniCredit’s all-share offer for Banco BPM, the fourth largest bank in Italy, at a negligible premium to the latter’s share price is in addition to UniCredit’s interest in acquiring Commerzbank. But with the collapse of the German government, clarity on whether a transaction is possible will have to wait until after elections in February 2025 and therefore likely to be many months away. Consequently, UniCredit has signaled its desire to be at the forefront of any consolidation in Italy and argues that the combination of the two banks is very complimentary, offering significant synergies.
Outlook
As we highlighted in last month’s commentary, the playbook from Trump 1.0 was a significant rally in financials but also broader equity markets which lasted around 18 months. The starting point for valuations is higher this time and much higher for wider equity markets which may temper the size of any sustained rally from Trump 2.0. But the added fear this time is that Trump will double-down on tariffs and the impact this will have on non-US markets. So understandably US equities have benefited already from being seen as more defensive versus other regional markets with significant inflows into US focused ETFs.
In November 2016 US equity markets outperformed non-US equity markets by “only” 5.9%, compared to 7.2% this time, but a year after the election US equities had given back that outperformance albeit still rising by a very credible 24.3%. Will US equities give back the outperformance we have seen in 2024? US financials did not give back their relative performance in 2017 but the permutations this time, exacerbated by wars ongoing in Ukraine and the Middle East and a President who has unfinished business, are bigger so will likely make 2025 a more volatile year for financial markets than 2024.
Nick Brind
Nick’s experience comes from running specialist and generalist funds with UK and global mandates for the past 25+ years
George Barrow
George is a specialist financials fund manager as well as an analyst across Europe, Asia and emerging markets
Tom Dorner
Tom joined Polar Capital in 2023 and is the analyst responsible for the global insurance sector
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