Polar Capital Global Financials beat its benchmark over the six months ended 31 May 2015 generating a return on net assets of 8.1% as compared to 4.9% on the MSCI World Financials Index. The share price total return was 7.6% as the discount widened to 8.3%. The interim dividend is 1.85p up from 1.75p last year.
Financial stocks lagged the wider market over the period but their portfolio outperformed. The Trust has holdings in three ‘UK challenger’ banks. Two of these, Aldermore and Shawbrook, were IPOs in the period. The other is One Savings Bank. They say all three have performed well, reflecting their high profitability and strong loan growth relative to peers while larger UK banks remain distracted by legacy issues. All three focus primarily on small business and property lending such as buy-to-let. Polar say, arguably, the bigger challenge to the sector will be the impact from technology with new entrants clearly trying to disrupt both the origination and distribution of financial services and it remains to be seen how successful they will be as some of the high valuations attached to recent IPOs have appeared excessive.
In May a number of banks settled with regulators with respect to outstanding foreign exchange (FX) market manipulation investigations but Polar believed that the amounts involved were below market expectations and say their bank holdings have risen in value since
They say there was a wider dispersion of returns from emerging markets and the opportunity was taken to reduce the Trust’s exposure by selling holdings in the likes of Bank Rakyat Indonesia and Security Bank of the Philippines on the back of strong performance. They also sold or reduced holdings in Eastern Europe including Bank of Georgia and TBC, both Georgian banks, and TSKB, a Turkish bank, where they perceived that the risk-reward ratio was less attractive relative to opportunities they were seeing in developed markets.
PCFT : Polar Financials bet on UK challenger banks pays off