How Polar is banking on US financials to build on its resurgent share price
ALTHOUGH it was the banks that triggered the 2008 financial cris i s and s ent stock markets into a tailspin, a diversified portfolio of financial stocks has proved a shrewd investment over the past decade.
Indeed, according to experts, global financial stocks could continue to deliver handsome investment returns as interest rates rise and profit margins increase.
A finance- related fund t hat walked into the 2008 financial cris i s and came out r el at i vely unscathed – bar the need to change the man at the fund’s helm – is Jupiter Financial Opportunities. Over the past ten years it has delivered a return of more than 150 per cent, in excess of that from the FTSE All Share Index.
Rival fund Polar Capital Global Financials Trust was not around when the banking crisis sent shock waves through the stock markets. Yet the investment trust, managed from offices within shouting distance of Buckingham Palace, has similarly thrived.
Since coming to the market in July 2013, its share price is up more than 50 per cent – and comanager Nick Brind is convinced that there is more investment return to be earnt from a portfolio that is heavily skewed towards banks and the US. He says: ‘Of course, as a fund manager, there are always concerns that markets may not go in the direction you expect. But fundamentally, at its core, the world’s banking system is better capitalised than it was ten years ago when the collapse of investment bank Lehman Brothers brought the world’s financial systems to its knees.
‘Whichever financial matrix you use, the financial sector is less risky than it was and therefore more attractive as an investment proposition.’
The trust’s initial launch was triggered by demand from wealth managers for an investment vehi- cle that offered exposure to the shares of banks and insurance companies outside the UK.
Unlike most investment houses that offer all things to all investors, Polar Capital specialises in a number of key investment themes such as technology, healthcare and financials. Apart from Polar Capital Global Financials, the £14 billion investment house also runs funds Financial Opportunities and Global Insurance plus Asian Opportunities and Income Opportunities that all have a strong financial bent.
Global Financials currently has more than half of its assets, spread across 70 companies, in banks – with the biggest geographic exposure being the United States at just over 40 per cent.
The trust has a couple of distinguishing features. First, exposure to UK stocks is restricted to ten per cent – essentially because that is what wannabe backers of the trust demanded – as are holdings in unquoted companies. HSBC, OneSavings Bank and Standard Chartered are among its UK holdings as is Atom, the only unquoted stock.
Secondly, the trust has an initial seven-year life which means it could be wound up in June 2020. A similar strategy was employed on Polar’s Global Healthcare trust which could have wound up last year. But investors voted to keep it going. John Regnier-Wilson, head of investment trust sales at Polar Capital, says the use of a pre-determined fixed term is designed to ensure that those investors who want out after seven years can sell their shares at close to asset value – rather than selling them when they traded at a significant discount.
He adds: ‘We are trying to do the right thing by investors. The sevenyear anniversary could be viewed as a shareholder safety valve.’
With 19 months to go, shares in Global Financials are currently trading at a four per cent discount.