Interactive Investor

Bullish financials investment trust targets £100m from investors

4th June 2021 09:53

Kyle Caldwell from interactive investor

High demand for this trust’s shares come on the back of its strong performance over the past year.

Polar Capital Global Financials (LSE:PCFT) is seeking to raise £100 million from investors via a ‘C share issue’ following a reversal in fortunes over the past year. Assets more than doubled, from £130 million to £279 million, according to analyst Winterflood.  

High investor demand for shares comes on the back of the trust's strong performance over the past year, which is up 61% in share price terms. Since November’s vaccine announcements, which boosted the prices of cyclical shares, including financials, the trust has traded on a small premium.

The issuance of more shares is a reflection that the fund managers running the trust are bullish on the outlook for the area the trust specialises in. If the trust is successful in raising the cash, it will have £100 million to put to work. Polar Capital Global Financials mainly invests in banks (which comprise 60% of its assets), fintech and insurance. Retail investors have until 16 June to invest.

Nick Brind, one of the trust’s fund managers, told interactive investor that financials will be one of the biggest beneficiaries of the re-opening trade and the market rotation towards value shares. He notes that across the sector balance sheets are strong and valuations are cheap.  

Brind points out that if interest rates go up to combat rising levels of inflation this will boost demand for financials – particularly banks.

He says: “Most investors are underweight financials. Now that the inflation genie has come out of the bottle, investors may now be thinking about diversifying away from sectors that have benefited from the low interest rate environment. Financials are an insurance policy against interest rates and inflation going higher from here.”

Brind, however, does not expect interest rates to rise any time soon. He notes that the market consensus is that rates will not rise in the US until the end of next year. If and when rates do rise, this would be a big tailwind for banks. But Brind is optimistic on the outlook for banks, even if interest rates remain at historic lows.

“Any interest rate rise would be a positive for banks as margins are being crushed. But if interest rates do not rise, then that just reduces the upside. The sector can still deliver good returns,” he says.

Polar Capital Global Financials holds a number of US banks in its top 10, with the top two holdings being JP Morgan (NYSE:JPM) and Bank of America (NYSE:BAC).

The trust has a small holding in HSBC (LSE:HSBA), but it is not investing in the other major UK banks at present as Brind sees more compelling opportunities elsewhere. The holding in HBSC is driven by the company being “the most sensitive to interest rates” among UK banks. 

What is a C share issue?

A C share issue is one of the ways investment trusts issue new shares. The new shares are separately quoted and have their own net asset value (NAV). At a certain point, the C share portfolio will merge with the rest of the investment trust’s assets. In the case of Polar Capital Global Financials, the two portfolios will join in early August after an interim dividend is paid to existing shareholders.

One of the main benefits is that existing shareholders do not suffer any dilution if they do not invest in the new shares.

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