Polar Capital Global Financials deserves a second chance
About a month ago, we published an update note on Polar Capital Global Financials (PCFT). This was timed to coincide with its announcement that it hoped to extend its life beyond its planned windup date and, if it could, raise more money. We explained why we thought this is a good idea. The managers had done a good job over the past seven years, especially relative to an investment in any of the big four UK banks (Barclays, HSBC, RBS and Standard Chartered); the trust had a good track record of growing its dividend; and Polar has one of the ablest and best-resourced teams in this sector.
But, and it’s a big but, covid-19 has hit PCFT hard. At the time of writing, the shares are 92.7p, down from 147.5p when we published our note, a fall of 37.2%. The trust’s shares have moved to a modest discount and it is now buying back shares.
There is a vote, scheduled for 7 April, at which shareholders will be asked to scrap the windup, approve tender offers at five-yearly intervals, simplify the benchmark, tweak the way that the management fee is calculated, allow a bit more borrowing (20% maximum instead of 15% maximum) and approve a tender offer to be held in April this year which will allow anyone who wants to get out to do so.
With markets tumbling, it might be an easy call for investors to ask for their money back. However, why would you force the managers to sell off the portfolio in the current market environment? What if they sold close to the bottom of the market and then shareholders had to watch as markets rebounded before the money reached their bank account? It seems like a bad idea to us to wind the fund up now.
On the other hand, the thinking behind the launch of PCFT was that financials and banks were out of favour following the financial crisis. Even after having made investors 82.8% between launch and 31 January 2020, the managers still thought there was more to go for. Today we are back to square one. If anything, now would be a good time to be launching a fund to invest in the recovery of the financial sector.
We think PCFT deserves to survive. What do you think? Feel free to comment below.
I met the lead manager (?) in Manchester recently and cannot remember ever having encountered such a complacent, smug and condescending individual, emblematic of every ‘fat cat’ criticism of the city. How sad is it that this fund’s justification to continue is just how poorly it has protected ivestors’ money in the current environment? All the fund did was ride on the back of the U S recovery since the financial crisis and the complacency of its strategy has been horribly exposed subsequently.