Investment trust insider on financials – James Carthew: How to play financials as yields keep rising
Back in the summer of 2020, I wrote an article about Polar Capital Global Financials (PCFT), highlighting the undervaluation of the financials sector and banks, in particular. That does not apply to UK banks, none of which have been good investments over the long term, but the wider global banking sector, which makes up a substantial part of the £209m investment trust’s portfolio.
At the time I was writing, PCFT’s shares were trading at about 107p. Today, they are around 154p. Does that mean you have already missed out on the recovery in the banking sector?
The trigger for the substantial rerating of the sector was the good news on vaccines that emerged last November. PCFT’s net asset value (NAV) and share price soared then and have continued to climb.
Investors had seemingly been fearing a repeat of the global financial crisis and failed to recognise that banks were in much better shape at the start of 2020 than they were in 2007. Over the years since the crisis, regulators have forced banks to strengthen their balance sheets and discouraged risky lending. Government support has played its part too. In the event, the pandemic did not translate into a surge in debt defaults.
In answering my question above, the first thing to note is that, globally, financials have still underperformed the wider market since the beginning of 2020. That could just mean that other sectors have become expensive. However, looking at this on an absolute basis, the MSCI ACWI Financials index is only marginally higher today than it was in December 2019 in US dollar terms and is still down on a sterling basis.
If all we were looking for from financials was to get back to where things started pre-Covid, we might be almost there. However… read more here