Article11 May 2026

Resilient earnings support financials - April Trust Update

Nick Brind

Fund Manager

George Barrow

Fund Manager

Tom Dorner

Fund Manager

Market and Trust review

Global equity markets staged a meaningful recovery in April as a partial de-escalation in Middle East tensions and a modest easing in energy prices helped restore investor confidence.

The Trust’s NAV (net asset value) rose 5.2% in the month, outperforming its benchmark index, the MSCI All Country World Financials Total Return Index, by 1.0%. This was driven by its exposure to trading platforms (StoneX Group) and strength in US and European banking holdings along with the underweight in Berkshire Hathaway. It was partially offset by weakness in AIA Group and certain emerging market holdings in Latin America and Asia.

Middle East conflict

The mood in financial markets shifted in April as diplomatic back channels between the US, Israel and regional interlocutors raised hopes of a ceasefire framework, reducing the immediate risk of a prolonged Strait of Hormuz disruption. Brent crude retreated from its March highs towards $95 per barrel, providing relief to European and Asian economies most exposed to the energy shock.

Notwithstanding the improvement in sentiment, the structural reconfiguration of global energy and trade relationships is far from resolved. In credit markets, investment grade and high yield spreads tightened modestly. Equity volatility, as measured by the VIX (a Volatility Index that measures how much volatility the US stock market expects over the next 30 days), declined from the elevated levels seen in March but remained above its long-run average, continuing to support trading activity at the platforms in which the Trust is invested.

The US Federal Reserve held interest rates steady at its April meeting, reiterating its data-dependent approach and offering no firm commitment to the timing of future cuts. The European Central Bank signalled that its interest rate path would be sensitive to the evolving energy price outlook and any second-round inflation effects. Against this backdrop, financials benefited from the combination of a higher-for-longer interest rate environment and the improving earnings visibility demonstrated during the first quarter (Q1) reporting season.

European banks

European banks’ Q1 2026 results provided a reassuring update on the sector with profits coming in better than expected, by 7% in aggregate and by 4% at the pre-provision profit level). Importantly, commentary on asset quality suggested limited visible impact from the current energy market dislocation in both reported Q1 numbers and early warning indicators – albeit managements expect some deterioration if the Middle East conflict persists into the second half of the year.

The quality of first-quarter earnings has reinforced our conviction in the core themes driving the Trust

The higher interest rate outlook allowed a number of banks to firm up core revenue guidance for the year while results from UniCredit and Erste Group Bank, both portfolio holdings, highlighted encouraging loan demand trends. The sustainability of this upturn will depend on whether there is some resolution to the conflict.

The quarter included additional detail on private credit exposure, primarily within the investment banks and secured with loans to value at around 60%. While the losses taken in the quarter were modest and viewed as idiosyncratic, given the opaque nature of the lending, we expect continued market focus on this and have limited exposure to these names.

Portfolio changes

Following signs of easing tension in the Middle East and following a sharp pullback in the preceding month, we raised risk in the portfolio through additions to our bank holdings in Europe, the US and Asia (Japan and South Korea). This was partially offset through reductions in our insurance holdings, including Chubb, Reinsurance Group of America and Hartford Financial Services.

We also initiated a position in BAWAG Group, an Austrian bank with presence across Europe, following the announcement that it will acquire PTSB* in Ireland. The acquisition looks attractive, with management outlining credible estimates to drive over 20% EPS (earnings per share) growth by year three. The bank has a strong track record of delivering shareholder value through acquisitions, with PTSB providing exposure to an attractive banking market with the potential to broaden the product set and deploy digital capabilities to help narrow the profitability gap relative to AIB Group and Bank of Ireland*.

Outlook

The recovery in markets during April has supported the cautious re-risking we undertook following the selloff in March as geopolitical tensions showed early signs of easing. The quality of first-quarter earnings has reinforced our conviction in the core themes driving the Trust. European banks in particular have demonstrated the earnings resilience and capital strength necessary to sustain attractive shareholder returns even in a more uncertain macroeconomic environment. Valuations in both absolute and relative terms do not reflect this. However, with the outlook dependent on uncertain geopolitical developments, we have looked to take a balanced approach to our portfolio construction given the narrowing window of opportunity to resolve the conflict without meaningful economic impact.

*not held

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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.