Article09 Jul 2026

Positioned for volatility, priced for value - June Trust Update

Nick Brind

Fund Manager

George Barrow

Fund Manager

Tom Dorner

Fund Manager

Market and Trust review

Markets were supported in June by signs of a developing peace process between Iran and the US. Alongside a retreat in the oil price, this encouraged a rotation into value and cyclicals – the Trust’s benchmark, the MSCI All Country World Financials Index, was up 4.9% – with the month-end selloff in technology stocks weighing on broader markets – the MSCI All Country World Index was up 0.7%.

The Trust’s net asset value (NAV) rose 5.3% in the month, outperforming its benchmark, supported by its exposure to US life insurers and banks along with strength in European bank holdings. This was partially offset by a selloff in exchanges (e.g. by Miami International Holdings on competition concerns following the US Commodity Futures Trading Commission’s approval of perpetual futures) and weakness in Prudential and Standard Chartered following new Chinese regulation on outbound investment.

European bank consolidation

Intesa Sanpaolo’s bid for Monte dei Paschi announced during the month was the latest chapter in a wave of Italian bank consolidation that has gathered pace over the past few years. To satisfy anti-trust considerations, the proposed Intesa-Unipol agreement carves out 635 branches, two million clients and €55bn of deposits which would be transferred to BPER Banca (BPER; a holding in the Trust). This represents the equivalent to roughly a third of BPER’s existing deposit and loan base. The deal, valued at €3-3.5bn, is yet to be agreed but would make BPER the second-largest banking group in Italy.

Based on Unipol’s estimated €800m synergies, it could generate 14% earnings per share accretion for BPER and combines its strong presence in the north with new operations in central and southern Italy. The government’s apparent preference for this structure, which delivers the third domestic banking pillar it has sought, has coincided with a softening in its stance on the use of Golden Power provisions that had previously complicated market consolidation. We see this as a constructive signal for further European bank mergers and acquisitions (M&A), experiencing their most active period for over a decade, reflecting excess capital levels, greater regulatory and political support for consolidation and lower returns on invested capital (ROIC) on buybacks as the sector rerates.

Trading platforms

Trading platforms remain a key theme for the Trust – we are invested in IG Group Holdings, StoneX Group, Interactive Brokers Group (IBKR), Plus500 and FlatexDEGIRO – as beneficiaries of elevated market volatility and longer-term structural trends linked to the democratisation of investment.

May metrics from IBKR highlighted the continued strong growth momentum with around 136,000 net new accounts in the month, equivalent to annualised growth of approximately 34%, and client margin balances and commissions both trending ahead of consensus estimates.

Plus500 launched a predictive markets product in June which provides US retail customers direct access to Kalshi’s events-based contracts. In addition to Plus500’s existing role as the clearing partner for FanDuel predictive markets, this latest product launch will support its presence in an area of strong growth (reaching $24bn global volumes in April of which sports represents >85%).

Government reforms to help narrow the savings gap and encourage investment are becoming increasingly prevalent and were highlighted by the announcement in June of pension reforms in Germany. The reforms are estimated to create around 10 million new brokerage accounts, and assuming FlatexDEGIRO maintains its existing market share, implies scope for around 400,000 incremental accounts beyond its current base of 589,000.

China/Hong Kong regulation

On 1 June, China announced new regulations on outbound investment, tightening compliance and oversight on cross-border flows and including, for the first time, individual investors, with particular focus on illegal cross-border brokerage and insurance sales. The announcement weighed on AIA Group and Prudential, both reliant on mainland Chinese visitor (MCV) flows into their Hong Kong life insurance businesses. The crackdown raises the prospect of tighter scrutiny on cross-border marketing activity, where some intermediaries solicit and explain products to clients while still in the mainland. This may include further checks on the source of funds used to purchase policies, given the modest $50k annual foreign exchange quota that is permitted for overseas savings or investment-type insurance.

Given the regulatory uncertainty – and importance of MCV business to AIA Group and Prudential which makes up 20-30% of group new business profits – we sold our holdings in both companies. While there remains some uncertainty regarding the ultimate intention of the regulatory tightening, we only made modest reductions to our holdings in HSBC Holdings and Standard Chartered. With both, the earnings downside is smaller with processes largely aligned with new regulatory requirements and their mainland clients’ funds already sitting offshore. In the longer term, we remain constructive on the tailwind from cross-border flows to support Asian wealth businesses and expect the regulatory tightening to benefit formal bank channels and wealth hubs. In our view, Singapore is particularly well placed (the Trust invests in Oversea-Chinese Banking Corporation (OCBC)).

Outlook

In a volatile first half of the year characterised by elevated geopolitical and economic uncertainty, we have been reassured by the resilience shown by our holdings. The portfolio has benefited from a deliberate shift into volatility beneficiaries and a reduction in exposure to those more vulnerable to an energy shock.

As the focus returns to underlying operating trends, we remain constructive on the outlook for the sector supported by improved risk-adjusted returns, the deployment of excess capital into earnings enhancing acquistions and increasing evidence of AI-driven efficiency gains.

In light of the improved outlook, and with valuations often still reflecting a level of uncertainty, we have taken the opportunity to add to a number of positions across the portfolio.

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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.