A strong outlook for risk-adjusted returns across multiple sectors expected in 2025
Financials materially outperformed wider equity markets in 2024 thanks to the combination of an increased expectation of a soft economic landing in the US and lower interest rates. As a result, this led to stronger earnings than expected and the discount at which the sector trades to the wider equity market shrinking back to levels last seen in 2019.
Looking forwards, we expect lower returns for equity markets in 2025, with valuations having risen towards historically high levels. Consequently, we expect performance to be more nuanced. The election of Donald Trump should be positive for US financials; it is expected to lead to stronger growth and will also result in a reduction in regulation, increased M&A activity and potentially lower tax rates. Conversely, it will likely lead to increased volatility from the imposition of tariffs.
We are overweight the US, more selective on Europe where the outlook for interest rates and growth is more uncertain, and underweight Asia and emerging markets, with non-US markets likely to be impacted by US-imposed tariffs. At a sector level, while we are overweight US banks we are underweight banks globally. We remain positive on alternative asset managers, payments companies and the reinsurance sector.
With the increase in M&A and significant underperformance over recent years, we would expect smaller companies to outperform larger companies. Finally, following a strong year for financial credit as spreads narrowed relative to government bond yields, we expect returns to be similarly lower but still offer attractive returns for their level of risk.
Nick joined Polar Capital following the acquisition of HIM Capital in September 2010, and is co-manager of Polar Capital Global Financial Trust and lead manager of the Polar Capital Financial Credit Fund. He has investment experience across a wide range of asset classes but since 2003 has focused on global financials.
Before joining HIM Capital, Nick worked at New Star Asset Management. While there, he managed the New Star Financial Opportunities Fund, a high-income financials fund investing in the equity and fixed-income securities of European financials companies. Previous to that, he worked at Exeter Asset Management and Capel-Cure Myers.
George Barrow
George joined Polar Capital in September 2010 as an analyst on the Financials Team. He is a co-manager on the Polar Capital Financial Opportunities Fund, and the Polar Capital Global Financials Trust, with Nick Brind and Tom Dorner.
He has over 10 years’ experience analysing Europe, Asia and emerging markets. Prior to joining Polar Capital, he was an analyst at HIM Capital from 2008 where he completed his IMC.
Tom Dorner
Tom joined Polar Capital as a Fund Manager in the Financials team in December 2023. He is a co-manager on the Polar Capital Global Financials Trust, with Nick Brind and George Barrow.
He joined from abrdn where he was a Senior Investment Director in the Developed Markets team and managed the abrdn Europe ex UK Income Equity Fund. He was responsible for analytical coverage of European financials and managed a number of other European investment funds during his nine years there. Prior to this, he was an analyst specialising in the European Insurance sector at Citi and Lehman Brothers in London.
