By James Carthew, QuotedData, 20 June 2024:
One of the great rules of investing is don’t buy something that you don’t understand. Fortunately, most businesses are reasonably straightforward, but one sector that is riddled with complexity is financials, especially when it comes to the banks, insurance and life assurance companies that make up the majority of it.
Unfortunately, financials are also the second-largest sector in global equity indices (based on the MSCI All Country World Index, a neutral weighting in the sector would be more than 16% of your portfolio), so it isn’t something that can be ignored.
In addition, if you restricted yourself to investing in UK financials, just 10 stocks account for over 90% of the market cap of the MSCI UK Financials index and HSBC accounts for well over a third of that.
There is a clear need to diversify your exposure, but that makes the stock selection decision even harder. Therefore, there is an excellent case for accessing the sector through a globally diversified fund managed by an expert team.
In the investment companies world, two trusts are focused on this sector – Polar Capital Global Financials trust and Augmentum Fintech. However, they target very different parts of it; the Polar trust is designed to offer broad-based exposure, while Augmentum is focused on the hopefully fast-growing new entrants to the industry, many of which are still unquoted companies.
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