Recovery and income potential make Polar Financials stand out
Shares Magazine, 11 March 2021
This investment trust is a good way to play brighter prospects for the financials sector
There is a growing consensus that as the global economy recovers from the pandemic and long term interest rates – such as the US 10-year Treasury yield and the UK 10-year gilt yield – start to move upward, investors need to increase their exposure to banking stocks.
The thinking goes that as banks are large, geared, cyclical plays they should benefit as the economy improves. They can lend more money to businesses and consumers at attractive rates while provisioning less against potential credit losses as the risk of default decreases.
Our preferred way to get exposure to the financial sector as a whole, not just banks, is through Polar Capital Global Financials Trust (PCFT).
WELL CAPITALISED
The big difference between the current pandemic and the global financial crisis of 2007 to 2009 is the health of the global banking system.
After the financial crisis, regulators worldwide forced banks to provision early for potential bad loans and to carry enough surplus capital to be able to withstand another severe drop both in stock markets and Recovery and income potential make Polar Financials stand out economic demand.
As a result, the banking system today is far better placed to help speed the recovery than it was over a decade ago. If short-term interest rates rise along with long-term rates – which isn’t a given at the moment but seems likely if inflation overshoots the central banks’ targets – then banks would be a big winner as they would be able to expand their net interest margins for the first time in many years…
RISING INCOME STREAM
Shonil Chande, an equity analyst at investment trust research group Quoted Data, highlights the fact the £220 million Polar fund aims to generate a growing dividend income alongside capital appreciation. As it stands, the dividend yield of 3%, paid semi-annually, is reasonably attractive compared with zero deposit rates.
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