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 31 January 2025
Market review
Global financials were very strong over the month, rising by 6.8% as illustrated by the Trust’s benchmark index, the MSCI All Country World Financials Index, led by US and European financials rising 7.4% and 9.7% respectively while Asian financials lagged, up by only 3.0%. Wider equity markets, which rose by 3.9%, were impacted by the news of DeepSeek’s much lower cost AI model which led to a selloff in technology shares. US banks’ earnings exceeded expectations. Revenues were higher than expected on the back of higher net interest income, due to better net interest margins and strong growth in capital market fees, while provisioning came in line with or better than expected, reflecting benign asset quality trends. Consequently, we saw positive earnings revisions for most US banks. Conversely, US insurers lagged the rally, in part as January renewals were weaker than expected, with pricing for property catastrophe reinsurance falling by around 8%, according to insurance broker Howdens. A number of companies also increased reserves on their casualty books as claims for previous years continue to trend higher than expected. Against that background, the Trust’s net asset value rose 6.3%, with holdings in BFF Bank and RenaissanceRe Holdings the main drag on performance.
Regulation
We see a reduction in regulation as a tailwind for the sector. Unsurprisingly, the topic was raised on US bank results calls. In response to a question on any likely impact on capital, Jeremy Barnum, the CFO of JPMorgan Chase, said: “I could go down some pretty deep rabbit holes speculating on all the different parts of the framework and how they could evolve. And I just don't really think that's productive right now. But let me make some attempt to answer your question. So backing off a second, if you read Jamie's [Jamie Dimon, CEO of JPMorgan Chase] quotes, they're very consistent with what we've been saying as a company for a long time, which is that all we want is a coherent, rational, holistically assessed regulatory framework that allows banks to do their job supporting the economy that isn't reflexively anti-bank. It doesn't default to the answer to every question being more of everything, more capital, more liquidity. It uses data and it balances the obvious goal that we all share of a safe and sound banking system with actually recognising that banks play a critical role in supporting growth.”
Similarly, the Chairman and CEO of Goldman Sachs, David Soloman, echoed those sentiments but also went on to discuss the lawsuit brought in December by the US banking industry against the Federal Reserve’s stress tests stating: “We have long been concerned that the lack of transparency and the Fed's current stress-testing creates uncertainty, and at times produces results we cannot understand, and which can lead to higher industry-wide borrowing costs, reduced market liquidity and inefficient capital allocations. For the industry, the bar to take this step was incredibly high. And while the Fed has announced that it's seeking to improve the stress test, the suit was filed to protect our rights. We believe it is our responsibility to continue to press for a more transparent regulatory process in order to foster a more efficient financial system that supports [the] growth and competitiveness of the US economy.”
Further underpinning the change in tone from the new administration, in a statement on his appointment as the new Chairman of the Federal Deposit Insurance Corporation, one of the three main banking regulators in the US, stated that there would be a wholesale review of regulations to ensure the rules and approach would “promote a vibrant, growing economy”. He added that the bank merger approval process would be improved to ensure merger transactions that satisfy the Bank Merger Act are approved in a “timely way”. In February, Russell Vought, the Acting Head of the Consumer Financial Protection Bureau, was reported by the Wall Street Journal to have issued a notice to staff demanding they “cease all supervision and examination activities”, not to issue any proposed or final rules or guidance and to suspend the effective dates of rules not yet effective.
In a volte-face, the narrative in the UK appears to be shifting to reduce the burden on the financial sector with, for example, the Treasury stepping in to intervene in the motor finance Supreme Court appeal calling for any compensation to be proportionate to the losses suffered. After the month-end it was also confirmed that going forward claims management companies will have to pay a £250 fee for every claim they send to the Financial Ombudsman Service having previously had to pay nothing, leading to many spurious claims and costs to financial institutions. In Europe, where politicians are also belatedly falling over each other to highlight the need to respond to the lack of growth, the European Commission’s new financial services commissioner has said she wants the capital markets union to go ahead with a “coalition of the willing” rather than wait for all countries to agree.
Outlook
Against this background, the Trust is overweight US and European banks. US banks took out their 2022 highs at the end of last year with the election of Donald Trump and the expectation of the positive tailwinds this would lead to for the financial sector. Nevertheless, despite the improved sentiment, at the end of the month they traded on a P/E1ratio of 12x, below the levels they reached in 2017 and 2021 which cannot be said for the wider equity market. Commentary remains very constructive. For example, Morgan Stanely highlighted on its earnings call that “Depending on how you measure it, whether volume or unit, you see pipelines in M&A that are the highest in seven years. So that is really encouraging. Now some of this will be dependent on how things roll in the first couple of months of the incoming administration and how things feel on a cross-border basis but the pent-up activity that we’re seeing is starting to release.”
If US banks are inexpensive European banks remain on very low valuations, on a P/E ratio of 8.0x, well below levels they have reached over the past 10 years. Likely missed by many market participants, they have hit six-year relative highs against wider European equity markets and are still around 20% ahead of US banks in terms of performance since the eve of the pandemic, over 30% if one excludes the impact of the stronger US dollar against the euro over that period. Unsurprisingly, performance prior to that is still held back by the consequences of the European Central Bank’s policy of negative interest rates which it insisted incredulously at the time had “negligible effect on bank profitability”. The other missing ingredient for European banks for most of the past 15 years has been the lack of loan growth. The most recent European bank lending survey has been more positive, showing a steadily increasing pickup in the demand for mortgages since the end of 2022. With household debt-to-GDP ratios having fallen substantially over the past 10+ years, the ingredients are in place for them to continue to surprise positively.
1P/E stands for price-to-earnings ratio, which relates a company's share price to its earnings per share.
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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