(Alliance News) - Polar Capital Global Financials Trust PLC on Thursday reported a sharp drop in assets over the first half, but is confident its portfolio will hold up in the short term.
At May 31, the trust's net asset value per share stood at 115.8 pence, down 22% from 148.5p at November 30.
Polar Capital Global Financials net assets fell 53% over the six month-period to GBP142.7 million from GBP301.2 million.
The firm's issued share capital dropped 39% to 123.3 million from 202.8 million, as the company held 79.5 million shares in treasury at the end of the first half.
During the period, the trust held a continuation vote, to continue beyond its 7-year fixed-life - with 61% of investors opting to remain invested.
Polar Capital Global Financials declared an interim dividend of 2.40p, unchanged on the year before.
As a result, the trust's NAV total return in the first half was negative 21% versus its benchmark - the MSCI ACWI Financials Net Total Return index, in sterling - losing 18%.
The trust's investment managers, Nick Brind and John Yakas, said: "It was a disappointing period for the trust's portfolio. At its worst point on March 23, Financials, as illustrated by the MSCI ACWI Financials index, had fallen by 32%, with the falls significantly cushioned by a sharp fall in sterling, before starting to recover along with sterling. They have since rallied 18.9% from the lows to the end of May and are little changed from then to the date of this report having given up the further gains they made at the beginning of June."
The manager said the company's bank holdings were the biggest drag on its performance, with US and European banks being the hardest hit as lockdowns were expected to have a significant impact on their earnings.
"The non-life insurance sector was also surprisingly weak despite its perceived defensive qualities. In particular, concerns around its exposure to business interruption but also travel insurance and even cancellation insurance policies resulted in shares in the sector falling quite sharply," the pair added.
Brind and Yakas noted stock exchanges, payment companies and some asset managers performed well.
Looking ahead, the investment managers believe there is "material upside" for the finance sector.
"The significant underperformance of the financial sector over the last six months, along with other cyclically sensitive sectors, has been exacerbated by the difficulty investors have found in quantifying the impact, given the size of the exogenous shock to economic activity and lack of historical comparisons. But while caution is warranted, in the short-term, we remain of the view that the downturn brought on by Covid-19 will be an earnings event for the sector given its underlying profitability and capital buffers, not a capital one, and therefore the upside for the sector remains material," they said.
Shares in Polar Capital Global Financials were 0.6% higher in London on Thursday afternoon at 109.17 pence each.
By Paul McGowan; paulmcgowan@alliancenews.com
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