Article07 Nov 2025

Earnings support a constructive outlook for financials - October Trust Update

Nick Brind

Fund Manager

George Barrow

Fund Manager

Tom Dorner

Fund Manager

Market and Trust review

Global equity markets performed well again in October, led by the continued strong performance of the technology sector as demonstrated by NVIDIA becoming the first company to achieve a >$5trn market cap. Q3 reporting has been favourable, with corporate earnings showing continued resilience.

As expected, the Federal Reserve lowered interest rates by 25bps and the market is expecting more rate cuts to follow soon. Japan elected its first female prime minister and she is expected to be positive for markets. The Trust’s NAV rose 1.0% during October, broadly in line with the MSCI ACWI Financials Index which rose 1.1%.

Credit where credit is due

US and European banks reported another strong set of quarterly earnings. In the US, banks’ results were supported by strong trading gains and growth in investment banking fees as M&A activity increased. In Europe, banks continued to beat and raise consensus expectations helped by better revenues and cost control. Even in markets like the UK, where the issue of motor finance provisions re-emerged, underlying results were strong.

During October we saw the collapse of Tricolor and First Brands in the US, which raised concerns over credit losses. Despite JP Morgan CEO Jamie Dimon’s observation around these losses being like “cockroaches”, they ultimately appear to have been idiosyncratic and concentrated in the automotive sector, driven by company-specific fraudulent activity. At a recent Financial Times Private Capital Summit in London, the Blackstone CEO rejected “100 per cent” the “idea that this was a canary in the coalmine”.

Also, commentary on conference calls about the strength of the consumer has been positive, such as this comment from JP Morgan’s CFO: “The current facts on the consumer side [are] resilient, spending is strong and delinquency trends are coming in below expectations. So, these are the facts that we really can’t escape”.

We are monitoring lending to non-deposit financial institutions, which has impacted some regional banks, and have shifted our exposure to options. We are overweight the large US banks and European banks, which have continued to perform well.

The market is worried for reinsurers because the wind did not blow

The Atlantic hurricane season was particularly benign which has led US/European reinsurance companies to report strong Q3 earnings. However, in this case good news is viewed by the market as bad news because strong profitability raises the likelihood of greater pricing competition which puts pressure on earnings over time. The market punished any insurer reporting disappointing growth and showing signs of pricing pressure, even if the absolute level of returns remained healthy.

This year we have significantly reduced our exposure to commercial reinsurers, particularly in the US. Our insurance holdings are now focused on company-specific turnarounds among US life insurers and improving growth momentum among Asian equivalents.

We are not saying we agree with the risk of an AI equity bubble, but we are saying that this concentration warrants diversification into sectors such as Financials where fundamentals are strong and valuations attractive.Deals are back on the menu

There has been a meaningful increase in M&A activity in the global financials sector during 2025. In October alone we saw a number of transactions announced. In the US banking sector, Fifth Third Bank* acquired Comerica Bank* for $11bn, paying 1.7x tangible book; Huntington Bank* acquired Cadence Bank for $7bn, also paying 1.7x tangible book.

In the insurance sector, Onex* and AIG* announced the acquisition of Convex* for $7bn, paying around 1.9x tangible book; Starr Insurance* acquired IQUW* for $1.5bn, paying around 1.5x book. We see this as a sign of confidence in the sector in terms of growth potential, balance sheet strength and regulatory stability. It also suggests that industry participants share our conviction that the sector offers compelling value.

Plenty of reasons to diversify

At a time when markets are increasingly concentrated, we think Financials offer a great way to diversify client portfolios. Consider that in the S&P 500 the top 10 stocks now represent over 40% of total market cap. Also, in the October Bank of America Fund Manager Survey, one third of respondents cited the AI-related equity bubble to be the biggest tail risk in markets. We are not saying we agree with the risk of an AI equity bubble, but we are saying that this concentration warrants diversification into sectors such as Financials where fundamentals are strong and valuations attractive.

Outlook

Recent earnings support our constructive outlook for the sector. A backdrop of more normalised interest rates, steeper yield curves (in part, a reflection of large public deficits and populist policies) and an easing in regulation (as governments shift to a more pro-growth stance) provides a supportive backdrop for the sector. While this shift in environment has supported the sector’s relative performance – it has outperformed over one, three and five years – valuations remain attractive, particularly in relation to the broader market.

*not held

See our glossary

Nick Brind
Nick joined Polar Capital following the acquisition of HIM Capital in September 2010, and is co-manager of Polar Capital Global Financial Trust and lead manager of the Polar Capital Financial Credit Fund. He has investment experience across a wide range of asset classes but since 2003 has focused on global financials.
Before joining HIM Capital, Nick worked at New Star Asset Management. While there, he managed the New Star Financial Opportunities Fund, a high-income financials fund investing in the equity and fixed-income securities of European financials companies. Previous to that, he worked at Exeter Asset Management and Capel-Cure Myers.
George Barrow
George joined Polar Capital in September 2010 as an analyst on the Financials Team. He is a co-manager on the Polar Capital Global Financials Trust, with Nick Brind and Tom Dorner.
He has over 10 years’ experience analysing Europe, Asia and emerging markets. Prior to joining Polar Capital, he was an analyst at HIM Capital from 2008 where he completed his IMC.
Tom Dorner
Tom joined Polar Capital as a Fund Manager in the Financials team in December 2023. He is a co-manager on the Polar Capital Global Financials Trust, with Nick Brind and George Barrow.
He joined from Aberdeen where he was a Senior Investment Director in the Developed Markets team and managed the Aberdeen Europe ex UK Income Equity Fund. He was responsible for analytical coverage of European financials and managed a number of other European investment funds during his nine years there. Prior to this, he was an analyst specialising in the European Insurance sector at Citi and Lehman Brothers in London.