Polar Capital Global Financials Trust (PCFT) recently provided investors with an opportunity to cash in their entire holding at net asset value (NAV, i.e. after costs). We argued strongly that the trust still has a bright future ahead of it and it was pleasing to see that holders of well over half the shares opted to remain invested. They will have another chance to cash in in five years’ time, and every five years thereafter.
These regular exit opportunities are a feature of the trust’s structure that we are big fans of. We think that by holding tenders at five-yearly intervals, investors are encouraged to think about the long-term prospects for the strategy rather than a short-term uplift from closing a discount – not that there was much of a discount on PCFT to close by the time the tender rolled around.
The shareholders who opted to exit back in 2020 will have regretted their action – as, to be fair, we warned them they would. The tender price in 2020 was 102p per share, but a year later the share price was already up 60%. Only a couple of weeks have passed since the 2025 tender, but the share price is already up to the level of the tender price as the NAV continues to climb and the discount stays fairly tight.
It helps that the board has committed to using buybacks to try to keep the discount tighter than 5%. The discount will be monitored over a three-month period and if the average discount is wider than 5% and the discount is still too wide, buybacks will be used to bring the discount back down again.
This was part of a package of shareholder-friendly measures introduced by the board that includes lower management fees and an enhanced dividend of 4% of NAV per annum.
The real attraction, though, is the resurgent financial sector. As the trust’s managers have observed, M&A activity is benefitting the European banking sector. There is a growing sense in Europe that the region needs a few regional champions capable of taking on the US banking giants. Post-global financial crisis (GFC) regulations mean banks are well-capitalised and have much better-quality loan books than they did before the GFC. With regulation now being seen by many as overly complicated and too restrictive, policymakers are pushing for changes arguing it is no longer fit for purpose – the pendulum has swung too far the other way to the detriment of economic growth.
Trading platforms and exchanges are seeing increased volumes. The market volatility that has characterised 2025 is good news as this helps drive volumes. Digitalisation and AI are driving down costs and enhancing profitability – that goes for other parts of the sector too.
Even areas that are often seen as less exciting are doing well. For example, a recent FT article highlighted the gains made by European insurance stocks this year, saying that the Stoxx Europe 600 insurance sub-index is up 15% so far over 2025, outperforming the S&P500 over one and three years. Part of the tailwind behind these stocks has been rising long-term government bond yields. They have also been beneficiaries of money flowing out of the US on concerns about Trump’s policies and looking for alternative homes.
The managers think that rising threats from risks such as climate change will help to keep margins high in the property & casualty and reinsurance sectors.
The managers also see opportunities in emerging markets. A weakening US dollar is normally associated with a better period for emerging markets. The best financials stocks in these countries are exploiting technological process to provide attractively priced financial services to an underserved customer base and are seeing explosive growth as a result.
Nothing goes up in a straight line – and we would encourage investors to look at the Polar Capital Global Financials Trust opportunity in terms of multiple years rather than months – but the 2025 trust has got off to a good start and we think it is well-positioned for the future.
