Polar Capital Global Financials (PCFT) has released its interim results for the six months ended 31 May 2021, which its managers (Nick Brind, John Yakas & George Barrow) describe as an “excellent one for financials in both absolute terms and relative to wider equity markets”. The period saw a significant turnaround in sentiment towards the financials sector, with PCFT’s benchmark index (the MSCI ACWI Financials Index) providing a total return of 21.5% versus a 9.3% total return performance for global equities as measured by the MSCI ACWI Index. PCFT’s NAV kept pace with this, providing an NAV total return of 22.2% during the same period.
During the six months to the end of May 2021, an overweight position in bank stocks and in particular US regional banks as well as gearing were the biggest contributors to performance. On the flip side, the biggest drag to PCFT’s performance was the trust’s holdings in the property & casualty insurance sector, payment companies and the quality tilt of the portfolio holdings which historically has lagged sharply rising equity markets. Currency was also a small drag on the trust’s performance.
Strong outperformance since tender offer in April 2020
The managers say that relative performance against the index since the tender offer closed on 22 April 2020 remains very strong, with NAV total return rising by 62.9% compared to the benchmark return of 49.8%. They comment that the timely repositioning of PCFT’s portfolio towards bank stocks, combined with the application of the gearing discretion permitted within the investment policies, were the primary drivers of the positive relative performance of the portfolio since last year’s tender offer.
Portfolio activity
The biggest shift in positioning during the period was a reduction in PCFT’s exposure to emerging market financials by around 10%, due in part to rising numbers of COVID-19 cases in several Asian countries and the managers’ concerns that new lockdowns have yet to feed through into economic data. Consequently, holdings in China Merchants Bank, KasikornBank, Bank of the Philippine Islands and Axis Bank were all sold while other holdings were reduced. The managers say that the other key reason for this shift was that momentum in markets shifted towards the US, Europe and other developed markets as they rolled out vaccines and there was increasing confidence about the recovery in their economies. As a result, proceeds from these sales were used to increase PCFT’s exposure to Europe and developed Asia as well as to reduce the trust’s gearing marginally. During the period, the managers purchased holdings in Commonwealth Bank of Australia, Sumitomo Mitsui Financial Group, BBVA, ING Groep and Nordea.
The managers also introduced a holding in London Stock Exchange Group following a disappointing trading statement while Allfunds Group, a European investment platform, was purchased on its IPO. The managers altered the mix of US banks slightly following the strong performance of the trust’s US regional bank holdings, locking in some of the profit. The managers also continued to reduce PCFT’s exposure to fixed income securities as the yields on offer continued to fall.