Polar Capital Global Financials Trust – The Trump Trade

Donald Trump’s first few weeks as President of the United States has brought daily reminders that he will be doing things a little differently. In the lead up to the election what was of most interest to us was the potential impact he would have on US financials, should he win. In his first term, his focus on deregulation, tax cuts and focus on economic growth was a good indicator for what to expect the second time around, albeit US equities were on much lower valuations in 2016 versus now.

The US economy showed robust growth in 2024, with macroeconomic indicators exceeding expectations. The Federal Reserve's so far successful soft landing for the economy was well-received by equity markets, as evidenced by the S&P 500 Index's impressive 25.0% rise last year. Against that background US financials returned 31.7% as they were seen as one of the biggest beneficiaries of the receding worries about a US recession.

Trump 2.0 has hit the ground running, already replacing the leadership at two key regulatory bodies, the Federal Trade Commission and the Consumer Financial Protection Bureau. His administration has also opposed the Federal Reserve’s efforts to increase capital requirements yet further for banks under the Basel III proposal, and there have been discussions around downsizing or even eliminating certain agencies to reduce overlapping regulatory functions and streamlining oversight.  

With Trump's anticipated reduction in corporate taxes as well as regulatory burdens, US financials, being more domestically focused, are poised to benefit and the expected moderation in capital requirements increases for banks. All of this plus the potential rise in M&A activity in our view present attractive investment opportunities. Consequently, we increased our holdings in several US financial stocks including holdings in US banks, reallocating from other portfolio areas.

Trump's policies are seen as inflationary, as reflected in the bond market's reaction, with 10-year US government bond yields at around 4.5%, having touched 3.6% in September. The resulting steepening of the yield curve, where the spread between long and short-term interest rates widens, is therefore advantageous where banks borrow at short-term rates and lend at long-term rates, increasing net interest income.

As expected, there has been some concern regarding Trump’s implementation of tariffs but, in our opinion, the most affected will be emerging markets, in which we are underweight, rather than the impact being felt directly on the financials sector. While it will take time for these recently announced tariffs to be fleshed out, from a financials sector point of view, we currently don’t see a big risk.  

While the expectation of lower regulatory pressures on banks is positive, the outlook for the US economy, which drives loan demand and credit losses, will have a more substantial impact on the sector's long-term performance. Although the sector's valuation is no longer anomalously cheap, it remains at a deep discount to the wider equity market and we believe presents a compelling investment opportunity.

Nick Brind, Fund Manager, Polar Capital Global Financials Trust 

Disclaimer:

The Company is an investment company with investment trust status and its shares are excluded from the Financial Conduct Authority’s (“FCA”) restrictions on the promotion of non-mainstream investment products. The Company conducts its affairs, and intends to continue to conduct its affairs, so that the exemption will apply.

The Company is an Alternative Investment Fund under the EU's Alternative Investment Fund Managers Directive 2011/61/EU as it forms part of UK law by virtue of the European Union (Withdrawal) Act 2018.

The Investment Manager

Polar Capital LLP is the investment manager of the Company (the "Investment Manager"). The Investment Manager is authorised and regulated by the FCA and is a registered investment adviser with the United States' Securities and Exchange Commission.

Key Risks

• Investors' capital is at risk and there is no guarantee the Company will achieve its objective.
• Past performance is not a reliable guide to future performance.
• The value of investments may go down as well as up.
• Investors might get back less than they originally invested.
• The value of an investment’s assets may be affected by a variety of uncertainties such as (but not limited to): (i) international political developments; (ii) market sentiment; and (iii) economic conditions.
• The shares of the Company may trade at a discount or a premium to Net Asset Value.
• The Company may use derivatives which carry the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions.
• The Company invests in assets denominated in currencies other than the Company's base currency and changes in exchange rates may have a negative impact on the value of the Company's investments.
• The Company invests in a concentrated number of companies based in one sector. This focused strategy can lead to significant losses. The Company may be less diversified than other investment companies.The Company may invest in emerging markets where there is a greater risk of volatility than developed economies, for example due to political and economic uncertainties and restrictions on foreign investment. Emerging markets are typically less liquid than developed economies which may result in large price movements to the Company.

Important Information

Not an offer to buy or sell:

This document is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, and under no circumstances is it to be construed as a prospectus or an advertisement. This document does not constitute, and may not be used for the purposes of, an offer of the securities of, or any interests in, the Company by any person in any jurisdiction in which such offer or invitation is not authorised.

Information subject to change:

Any opinions expressed in this document may change.

Not Investment Advice:

This document does not contain information material to the investment objectives or financial needs of the recipient. This document is not advice on legal, taxation or investment matters. Prospective investors must rely on their own examination of the consequences of an investment in the Company. Investors are advised to consult their own professional advisors concerning the investment.

No reliance:

No reliance should be placed upon the contents of this document by any person for any purposes whatsoever. None of the Company, the Investment Manager or any of their respective affiliates accepts any responsibility for providing any investor with access to additional information, for revising or for correcting any inaccuracy in this document.

Performance and Holdings:

All data is as at the document date unless indicated otherwise. Company holdings and performance are likely to have changed since the report date. Company information is provided by the Investment Manager.

Benchmark

The Company is actively managed and uses the MSCI ACWI Financials Net TR Index as a performance target and to calculate the performance fee. The benchmark has been chosen as it is generally considered to be representative of the investment universe in which the Company invests. The performance of the Company is likely to differ from the performance of the benchmark as the holdings, weightings and asset allocation will be different. Investors should carefully consider these differences when making comparisons. Further information about the benchmark can be found www.mscibarra.com.

Third-party Data

Some information contained in this document has been obtained from third party sources and has not been independently verified. Neither the Company nor any other party involved in compiling, computing or creating the data makes any warranties or representations with respect to such data, and all such parties expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained within this document.

Country Specific Disclaimers

United States

The information contained within this document does not constitute or form a part of any offer to sell or issue, or the solicitation of any offer to purchase, subscribe for or otherwise acquire, any securities in the United States or in any jurisdiction in which such an offer or solicitation would be unlawful. The Company has not been and will not be registered under the United States Investment Company Act of 1940, as amended (the “Investment Company Act”) and, as such, the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Company will be offered and sold only outside the United States to, and for the account or benefit of non-U.S. Persons in “offshore- transactions” within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained in this document, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.

Further Information about the Company

Investment in the Company is an investment in the shares of the Company and not in the underlying investments of the Company. Further information about the Company and any risks can be found in the Company’s Key Information Document, the Annual Report and Financial Statements and the Investor Disclosure Document which are available on the Company's website, found at:  https://www.polarcapitalglobalfinancialstrust.com