Polar Capital Global Financials outperforms as financials in demand – Fast-growing Polar Capital Global Financials Trust rewarded its shareholders with an NAV return of 27.9% and a share price return of 29.7% over the course of the 12 months ended 30 November 2021. Both returns were ahead of the 27.0% return delivered by the MSCI ACWI Financials Index and that was well ahead of the return on the wider MSCI World Index of 22.6%. The dividend was maintained at 4.4p and that was fully covered by earnings of 4.42p. The company’s ongoing charges ratio fell from 1.09 to 1.02% and we expect that to keep falling given the expansion of the fund.
The chairman says that, as a result of the changes to share capital combined with strong investment performance, the total NAV increased from £166m to £457m over the period under review. The board believes these capital changes have had the beneficial effect of enhancing liquidity in the shares and expanding the breadth and depth of the shareholder base.
The NAV outperformance was driven by asset allocation rather than stock selection. The chairman praises the way that the managers handled the influx of cash into the fund without allowing it to act as a drag on returns.
Unfortunately, the manager’s statement was omitted from the announcement and so we don’t yet know which stocks drove returns. I’d expect to rectify that situation in our next note on the trust, or investors can look out for the full report and accounts when that is published.
Changes to fee calculations
Since the company’s reconstruction in April 2020 the performance fee has been calculated as 10% of the excess performance over the total return of the benchmark plus a hurdle of 1.5% per year. The fee is calculated on performance since the reconstruction (NAV +70.4% versus benchmark +56.6%) and is accrued and only paid at the time of the five-yearly tender.
Due to the significant growth in the share capital during the year under review, the current calculation methodology presented an unintended outcome for the performance fee accrual. In order to address this, the board worked with the manager to amend the calculation to ensure that the performance fee accrual purely reflects investment performance as intended and is not distorted by share capital changes. This revised methodology has resulted in a reduction in the performance fee accrual in the trust’s 2021 financial year. Any performance fee accrual can be reduced by subsequent underperformance of the benchmark plus hurdle rate over the remainder of the five-year period.
At the time of the reconstruction, the manager agreed to a reduction in its base fee from 0.85% per year of the lower of the market capitalisation and NAV, to 0.70% per year of NAV.
PCFT : Polar Capital Global Financials outperforms as financials in demand