# Polar Capital Global Financials Trust plc Annual Report and Financial Statements for the year ended 30 November 2021 ![img-0.jpeg](img-0.jpeg) --- # Contents Your Company at a Glance 1 Summary of Share Capital Movements 2 Financial Highlights 3 Performance 4 Performance Highlights 5 Chairman's Statement 6 Board of Directors 12 Investment Managers 14 ## Expert Knowledge Investment Manager's Report 16 Attribution Analysis 26 Portfolio Composition: Ten Largest Investments 27 Full Investment Portfolio 28 Portfolio Review 30 ## Governance Strategic Report 32 Section 172 Statement 42 Report of the Directors 45 Report on Corporate Governance 49 Directors' Remuneration Report 57 Audit Committee Report 62 Statement of Directors' Responsibilities 71 Independent Auditors' Report 72 ## Financial Statements Statement of Comprehensive Income 81 Statement of Changes in Equity 82 Balance Sheet 83 Cash Flow Statement 84 Notes to the Financial Statements 85 ## Shareholder Information Alternative Performance Measures (APMs) 113 Glossary of Terms 116 Investing 118 Warning to shareholders 120 Additional Information 122 Contact Information 124 Polar Capital Global Financials Trust plc (the Company) is a UK investment trust launched in July 2013. The Company initially had a fixed seven-year life but in April 2020, with shareholder approval, moved to five-yearly tender offers with no fixed end of life. > See more at: > polarcapitalglobalfinancialstrust.com The Company has appointed Polar Capital as its Investment Manager. Since its foundation in 2001, Polar Capital has grown steadily and currently has 16 autonomous investment teams managing specialist, active and capacity constrained portfolios, with a collegiate and meritocratic culture where capacity of investment strategies is managed to enhance and protect performance. ## Investment Company of the year 2021 Awards “Highly Commended” Judging Panel: “the trust is so differentiated and seen real comeback, outperforming its benchmark and issuing shares” --- # Your Company at a Glance ## Investment Objective The Company's investment objective is to generate for investors a growing dividend income together with capital appreciation. ## Investment Policy The Company seeks to achieve its objective by investing primarily in a global portfolio consisting of listed or quoted securities issued by companies in the financials sector operating in the banking, insurance, property and other subsectors. The portfolio is diversified by factors including geography, industry sub-sector and stock market capitalisation. Full details of the investment policy are set out on pages 32 and 33 of the Strategic Report. ## Life of the Company – Tender Offer/ Reconstruction The Company was launched in July 2013 with a fixed seven-year life. Shareholders approved changes to the Company's Articles of Association to make a tender offer to all shareholders and to extend the Company's life indefinitely at the Company's General Meeting held on 7 April 2020 ("the Reconstruction"). The new Articles of Association removed the fixed life and now require the Company to make tender offers at five-yearly intervals, with the first to commence on or before 30 June 2025. ## Management The Company operates as an investment trust with an independent Board and third-party investment manager. The Investment Manager and AIFM is Polar Capital LLP and the portfolio has been jointly managed by Mr Nick Brind and Mr John Yakas since launch on 1 July 2013. With effect from 1 December 2020, Mr George Barrow was also appointed as Co-Fund Manager with Mr Brind and Mr Yakas. Details of the fees payable to the Investment Manager can be found on pages 39, 40, 91 and 92. The Management Fee is charged 80% to capital and 20% to revenue; the Performance Fee, when payable, is charged 100% to capital. ## Benchmark In April 2020, following the reconstruction of the Company, the benchmark was changed to the MSCI ACWI Financials Net Total Return Index (in Sterling with dividends reinvested) in recognition of the Company's level of portfolio exposure to emerging market financials equities and its limited portfolio exposure to real estate equities. Prior to this, the Company was benchmarked against the MSCI World Financials + Real Estate Net Total Return Index. See page 23 for more information. ## Gearing and use of Derivatives Under the Articles of Association the Company may utilise an overall maximum leverage limit of 20 per cent. of NAV at the time at which the relevant borrowing is taken out or increased. In July 2021, the Company entered into a new agreement with RBS International for a one-year revolving credit facility ("RCF") in the amount of £40m and a one-year term loan facility of £20m. At the year end, £35m in sterling and £15.4m in US dollars had been drawn down under these facilities. Subsequent to the year end there were no additional amounts drawn down under these facilities and the net gearing equated to 2.8% as at 7 March 2022. Further details of how the borrowings may be utilised are given in the Strategic Report on page 32. ## Capital Structure As at 30 November 2021, the Company had 279,330,000 ordinary shares of 5 pence each in issue, of which 6,350,000 shares were held in treasury (2020: 202,775,000 ordinary shares of 5 pence each in issue of which 79,724,900 were held in treasury). Please refer to the table on page 2 for further information on share capital changes. Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc --- # Summary of Share Capital Movements | | Ordinary shares | Treasury shares | C Shares | | --- | --- | --- | --- | | As at 1 December 2020 | 123,050,100 | 79,724,900 | - | | Share capital change during the financial year | | | | | Shares issued since 1 December 2020 and up to General Meeting held 1 February 2021: | | | | | Reissue out of treasury (1) | 11,624,900 | (11,624,900) | - | | As at 1 February 2021 | 134,675,000 | 68,100,000 | - | | Shares issued since 1 February 2021 and up to Annual General Meeting held 30 March 2021: | | | | | Reissue out of treasury (2) | 27,275,000 | (27,275,000) | - | | As at 30 March 2021 | 161,950,000 | 40,825,000 | - | | Shares issued since 30 March 2021 and up to the year ended 30 November 2021: | | | | | Reissue out of treasury (2) | 34,475,000 | (34,475,000) | - | | C Share issue (3) | - | - | 122,000,000 | | C share conversion (3) | 76,555,000 | - | - | | C Share cancellation (3) | - | - | (122,000,000) | | As at 30 November 2021 | 272,980,000 | 6,350,000 | - | | Share capital change subsequent to the financial year end | | | | | Shares issued since 30 November 2021 and up to General meeting held on 1 February 2022: | | | | | Reissue out of treasury (2) | 6,350,000 | (6,350,000) | - | | Issues of new shares out of 2021 AGM authority (4) | 15,150,000 | - | - | | As at 1 February 2022 | 294,480,000 | - | - | | Shares issued since 1 February 2022 and up to the date of this Annual Report 7 March 2022: | | | | | Issue of new shares pursuant to Subsequent Placing 1 in Jan 2022 (3) | 16,869,893 | - | - | | Issue of new shares pursuant to Subsequent Placing 2 in Feb 2022 (3) | 9,905,427 | - | - | | Issues of new shares out of 2022 GM authority (5) | 7,550,107 | - | - | | As at 7 March 2022 | 328,805,427 | - | - | The shares above have been issued under the following authorities: Note 1: AGM authority granted by Shareholders on 28 May 2020. Note 2: General Meeting ("GM") authority granted by Shareholders on 1 February 2021. This was in addition to the authority granted under (1). Note 3: Prospectus following the GM authority granted by Shareholders on 16 June 2021. This was in addition to the authority granted under (4). Note 4: AGM authority granted by Shareholders on 30 March 2021. This replaced the authority granted under (1). Note 5: GM authority granted by Shareholders on 1 February 2022. This replaced the authority granted under (4). Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- # Financial Highlights ## Financial Highlights as at 30 November ![img-1.jpeg](img-1.jpeg) Total net assets* (+175.9) ![img-2.jpeg](img-2.jpeg) Net asset value (NAV) per ordinary share (+24.4) ![img-3.jpeg](img-3.jpeg) Ordinary share price (+26.0) ![img-4.jpeg](img-4.jpeg) Premium per ordinary share* ![img-5.jpeg](img-5.jpeg) Net gearing* ![img-6.jpeg](img-6.jpeg) Ordinary share price (total return)* ![img-7.jpeg](img-7.jpeg) Net asset value per ordinary share (total return)* ![img-8.jpeg](img-8.jpeg) Total dividend per ordinary share paid or declared for the year ## Dividends† The Company has paid or declared the following dividends relating to the financial year ended 30 November 2021: | Pay date | Amount per Ordinary share | Ordinary Shares in Issue | Record Date | Ex-Date | Declared date | | --- | --- | --- | --- | --- | --- | | First interim: 31 August 2021 | 2.40p | 182,475,000 | 6 August 2021 | 5 August 2021 | 1 July 2021 | | Second interim: 28 February 2022 | 2.00p | 281,730,000 | 7 January 2022 | 6 January 2022 | 15 December 2021 | | Total (2020: 4.40p) | 4.40p | | | | | Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc --- # Performance ## Performance since Inception Rebased to 100 at 1 July 2013 ![img-9.jpeg](img-9.jpeg) ## Discrete Performance (%) For the year ended 30 November | | 2013– | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | NAV per share (TR)* | 3.7 | 9.8 | 5.3 | 22.2 | 16.4 | -1.5 | 10.4 | -6.5 | 27.9 | | Ordinary share price (TR)* | 5.8 | -2.2 | 6.2 | 21.4 | 16.7 | -1.7 | 12.4 | -1.6 | 29.7 | | Benchmark (TR)* | 6.4 | 11.0 | 0.9 | 24.5 | 14.2 | -0.1 | 9.9 | -6.4 | 27.0 | * See page 5 note 1 and note 2 for NAV and share price total return (TR) calculation respectively and note 4 for a definition of the benchmark. – Performance total return (TR) for the period was from inception date of 1 July 2013 to 30 November 2013. Source: Polar Capital ## NAV per Share Total Return Performance since Inception within Lipper Peer Group ![img-10.jpeg](img-10.jpeg) Note: Source Lipper: Data quoted from 1 July 2013 through 30 November 2021. The Lipper peer group includes mainly open ended funds and had an average Sharpe ratio of 0.43. The Company's Sharpe ratio over the same period was 0.58. Performance is based on the Company's NAV per share, net of fees in GBP terms. Sharpe ratio based on monthly frequency. The Sharpe ratio is a measure of risk adjusted return. It is the excess portfolio return over the risk-free rate relative to its standard deviation. Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- # Performance Highlights | Performance (Sterling total return) | For the year ended 30 November 2021 | Since Inception | | --- | --- | --- | | | % | % | | NAV per ordinary share(1)* | 27.9 | 121.8 | | Ordinary share price(2)* | 29.7 | 119.5 | | Ordinary share price including subscription share value(3)* | - | 124.4 | | Benchmark (Sterling total return)(4) | For the year ended 30 November 2021 | Since Inception | | --- | --- | --- | | | % | % | | MSCI ACWI Financials | 27.0 | 109.2 | | Chain-linked benchmark | 27.0 | 120.0 | | Other Indices and peer group (Sterling total return) | | | | MSCI World Index | 22.6 | 187.4 | | FTSE All Share Index | 17.4 | 62.8 | | Lipper Financial Sector(5) | 22.7 | 90.5 | | Performance since the Reconstruction on 22 April 2020 (Sterling total return) | Since Reconstruction | | --- | --- | | | % | | NAV per ordinary share(6)* | 70.4 | | Benchmark(4) | 56.6 | | Earnings per Ordinary share(7) | For the year ended 30 November 2021 | For the year ended 30 November 2020 | | --- | --- | --- | | Revenue Return | 4.42p | 3.01p | | Capital Return | 24.57p | (33.01p) | | Total | 28.99p | (30.00p) | | Expenses* | For the year ended 30 November 2021 | For the year ended 30 November 2020 | | --- | --- | --- | | Ongoing charges | 1.02% | 1.09% | | Ongoing charges including performance fee | 0.98% | 1.74% | Note 1 The total return NAV performance for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. Performance since inception has been calculated using the initial NAV of 98p and the NAV on 30 November 2021. Dividends are deemed to be reinvested on the ex-dividend date as this is the protocol used by the Company's benchmark and other indices. Note 2 The total return share price performance is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date. Performance since inception has been calculated using the launch price of 100p to the closing price on 30 November 2021. Note 3 The total return share price performance since inception includes the value of the subscription shares issued free of payment at launch on the basis of one for every five Ordinary shares and assumes such were held throughout the period from launch to the final conversion date of 31 July 2017. Performance is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date and uses the launch price of 100p per Ordinary share and the closing price per Ordinary share on 30 November 2021. Note 4 The benchmark changed on 23 April 2020 to MSCI ACWI Financials Net Total Return Index (in Sterling) due to the Company's exposure to Emerging Market financials equities and its limited exposure to real estate equities. Prior to this the Company's benchmark was MSCI World Financials + Real Estate Net Total Return Index. Preceding 31 August 2016, the Company's benchmark was the MSCI World Financials Index, which included Real Estate as a constituent until its removal that year. Benchmark performance above illustrates linked performance of these benchmarks. Note 5 Dynamic average of open ended funds in the Lipper Financial Sector Universe which comprised 47 open ended funds in the year under review. Note 6 The total return NAV performance since the Reconstruction is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. The new performance fee period runs from the date of the Reconstruction. The opening NAV for the performance fee of 102.8p is the closing NAV the day before the tender offer was completed. Note 7 Refer to Note 11 on page 94 for more details. * See Alternative Performance Measure on pages 113 to 115. - The performance fee calculation methodology has been amended to remove an unintended outcome of the previous methodology, see note 29 on page 112. Data sourced by HSBC Securities Services Limited, Polar Capital LLP and Lipper. Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc --- # Chairman's Statement Robert Kyprianou Chairman ![img-11.jpeg](img-11.jpeg) On 17 February 2022, the Company released Preliminary Results to the market which included my Chairman's Statement to you at that date, as below. Given the continued strong demand for the Company's shares, the release of the Preliminary Results updated the market ahead of a second subsequent placing of shares under the terms of the Prospectus issued in May 2021. Despite closing on the first day of Russia's military attack on the Ukraine, the second subsequent placing resulted in the issue of 9,905,427 new Ordinary Shares for a total consideration of £16.6m, demonstrating the confidence shareholders have in the Company and the global financial sector. Shares were issued at a price of 167.75 pence per share, representing the NAV plus 1.5% costs. My Chairman's Statement below was released before Russia began military operations in Ukraine. Events are fast moving and unpredictable and it will likely be some time before the full effects of Russia's attack on Ukraine and how they impact our sector play out. We are closely monitoring developments with the Manager and assessing how best to respond on behalf of shareholders. In the meantime our thoughts are with those directly involved or who have links to the region. 9 March 2022 Dear Shareholders, 2021 was the year of the COVID-19 vaccine – two doses and a booster battling new variants and conspiracy theorists. As I write the battle continues, but with signs suggesting a cohabitation with the virus that allows some kind of return to normality is on the horizon. In last year's Chairman's statement, I spoke of green shoots for the Company with signs of a change in sentiment towards the financial sector. These shoots blossomed in 2021. During the financial year under review the Company recorded a net asset value total return of 27.9%, outperforming broader market indices. The dramatic improvement in sentiment towards the sector and Company is best demonstrated by share capital changes between the latest and previous financial years. In the 2020 financial year (FY20) the Company bought into treasury a total of 79,159,235 ordinary shares following the tender offer in April 2020 and made further purchases to support liquidity in the Company's shares. In sharp contrast, during the financial year 2021 (FY21) a total of 76,555,000 new ordinary shares were issued following the conversion of a successful C Share issue and a further 73,374,900 shares were re-issued from treasury to meet strong demand for the Company's shares. Further significant new ordinary share issuance has taken place following the year end in response to continuing strong demand. These changes in share capital are described in more detail below. Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- As a result of the changes to share capital combined with strong investment performance, the NAV of the Company increased from £166m to £457m over the period under review. The Board believes these capital changes have had the beneficial effect of enhancing liquidity in the shares and expanding the breadth and depth of our shareholder base. Despite the extraordinary volatility in the Company's fortunes over the past two years, the Board has been able to maintain a steady dividend through the careful management of distributable reserves. The Board has announced a second interim dividend of 2.00p payable on 28 February 2022, maintaining the total dividend for the year at 4.40p for the second year running. I am pleased to welcome to the Board Cecilia McAnulty who joined on 1 November 2021. Cecilia was appointed as phase one of the Board's succession plan, with the original Board members in place at the IPO retiring as their nine year tenures expire. Cecilia has joined as Audit Chair-elect to ensure a smooth transition with the current Audit Chair, Joanne Elliot, who will step down from the Board following the forthcoming AGM in April 2022. ## Performance The sharp improvement in sentiment towards the financials sector in FY21 was evident in the performance of the Company's benchmark, the MSCI ACWI Financials Index, which delivered a total return in sterling terms of 27.0%, comfortably ahead of the MSCI ACWI Global index's 20.6% total return. Your Manager was able to match this strong performance by delivering a total return of 27.9% after all expenses over the year. Since the reconstruction of the Company on 22 April 2020, the portfolio has generated a total return of 70.4% (net of expenses) compared to the benchmark's total return of 56.6%. The Manager was also able to successfully manage significant and regular capital inflows in a rising market, which can often be a drag on investment performance. In addition, the use of the C Share structure for a large portion of share issuance ensured that both performance and the revenue reserve were protected for our existing shareholders until the proceeds were fully deployed. In FY21 the Manager's stock selection, previously a consistent source of added value, was for the first time a drag on performance relative to the benchmark. This was compensated by an overweight allocation to the strongly performing banks sub-sector, in particular US regional banks, and by the Manager's use of leverage in a rising market. Other key features of the Manager's investment style included broad diversification across sectors and regions, including emerging markets, and a high active share of over 75% when positioning the portfolio against the benchmark. Drivers of performance are described in more detail in the Manager's Report. Gearing is one of the tools that many investment trusts have at their disposal and the Manager deployed gearing during the year in order to enhance returns. The Board regularly reviews the borrowing arrangements that enable gearing and during the year switched providers to ensure the Company had the best available terms for both the revolving credit and term facilities. ## Share Capital Changes - A Year of Extraordinary Growth In April 2020 a Company reconstruction took place in the form of a 100% tender offer and the replacement of the fixed end-of-life with a five yearly tender offer. The tender resulted in the Company buying into treasury 79,159,235 ordinary shares, accounting for 39.1% of the shares in issue at that time. In addition to the tender the Company bought into treasury a further 670,000 ordinary shares in FY20 to support trading in the Company's shares, which traded for much of the year at a discount to NAV, reflecting the very negative sentiment towards the financials sector at that time. The experience in FY21 could not provide a greater contrast. In my statement last year, I noted the positive change in sentiment towards the sector that followed the announcement of successful vaccination trials in November 2020. By the end of the same month, this resulted in the Company's share price trading at a premium to NAV and, on the very last day of the financial year, the first re-issue of shares out of treasury to satisfy investor demand. During FY21 demand for the Company's shares remained consistently strong with its share price trading at a persistent premium to NAV. As I reported in my half year statement, the Board responded to the strong interest in the Company's shares by concluding a successful new issue of £122m C shares in June 2021, which were converted to 76,555,000 ordinary shares in August 2021. In addition, over the year, the Company re-issued a further 73,374,900 ordinary shares from its treasury account to satisfy persistent strong demand and to help facilitate orderly trading. Interestingly, the treasury shares were bought back in 2020 at an average price of 103.00p per share and re-issued during 2021 at an average price of 162.15p. Both exercises had the additional benefit of enhancing NAV per share for existing shareholders. As a result, the number of ordinary shares in issue increased by 150m in aggregate from 123m ordinary shares at the beginning of the financial year to a total of 273m at the financial year end. The total cash raised during the financial year through the C share issue and treasury sales amounted Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc --- Chairman's Statement continued to £239m. Coupled with the rise in the share price, the Company's market capitalisation rose by a remarkable 180% from £168m to £470m over the course of the financial year. Ordinary shares remaining in treasury at the financial year end stood at 6.35m. Since then, demand for the Company's shares has continued to be strong, exhausting the remaining shares held in treasury within the first two weeks of the start of the 2022 financial year (FY22). At the 2021 AGM the Company was given authority to issue 16.2m ordinary shares without pre-emption rights. By the end of January 2022, the remaining authority had reduced to 1m shares through issuance to satisfy demand; the Company was granted shareholder approval to renew the authority to issue shares on a non pre-emptive basis at a General Meeting on 1 February 2022 to provide additional flexibility to manage ongoing demand for shares. This authority, unless renewed earlier, will expire at the AGM to be held in April 2022, at which time a new authority to issue up to 10% of the enlarged share capital will be sought from shareholders. Any shares sold into the market by the Company from either treasury or from its new issuance authority are only sold at a premium to the 'live' NAV calculated at the time of the transaction and are therefore accretive to NAV. In FY21, the cumulative effect of treasury share sales provided a 0.3617p uplift to NAV per share. Apart from a brief period in the summer after the C shares were converted to ordinary shares, the Company's share price has consistently traded at a premium to NAV despite the extraordinary growth in shares in issue. The widest premium was 4.96% and at the end of the financial year the premium was calculated at 2.69%. The rise in the number of shares in issue has not only brought critical mass to the Company and improved the liquidity of trading in its shares, it has also expanded and deepened our shareholder register. At the time of the tender in April 2020 the largest shareholder held 30% of the shares in issue. By 1 February 2022 the largest holding was 13% while a number of new investors were added to the list of shareholders. The Board is very appreciative of the support it has received from its longstanding shareholders and warmly welcomes its new shareholders. The Board remains ready and willing to respond to any further demand for the Company's shares. The Directors have the ability, under the Prospectus issued on 12 May 2021, to undertake a second C share issue or subsequent placings of ordinary shares. The first such subsequent placing was undertaken at the end of January 2022 and resulted in the allotment of 16,869,893 ordinary shares for an aggregate value of £29.4m. The Directors believe that having the ability to ensure a ready supply of ordinary shares under the shareholder authorities, in any tranche size, should assist with reducing share price volatility by maintaining liquidity and satisfying demand in the market. ## Dividends In August 2021 the Company paid a first interim dividend of 2.4p per ordinary share. On 15 December 2021 the Company announced a second interim dividend of 2.0p per ordinary share, payable on 28 February 2022. The total dividend of 4.4p per ordinary share is unchanged from the total dividend paid in the previous financial year. One of the advantages of the investment trust structure is the ability to support dividend payments through periods of volatility in underlying earnings. The COVID dominated environment of the past couple of years has certainly been such a period. Up to the 2019 financial year the Company was able to grow the dividend steadily by an average of 7.28% p.a. while building up revenue reserves. Since then, the portfolio's earnings have been adversely affected by the pandemic-induced recession. Despite this the Company has been able to maintain the level of dividend with the help of its distributable reserves. Revenue earnings for the year ended November 2021 amounted to £8.4m. The higher number of shares ranking for the second interim dividend at the "ex" date will result in a total cash dividend paid for the year ended 30 November 2021 of £10m. On a per share basis the total dividend in respect of FY21 appears covered as the earnings per share is calculated based on the weighted average number of shares in the year. However, on a cash basis, the dividend is paid on the number of shares in issue at the record date. Due to the significant share issuance throughout the financial year and up to the ex-dividend date, the number of shares ranking for the dividend is higher than the number of shares used for the earnings per share calculation and, as a result the dividend is not fully covered in cash terms and will partially be paid from distributable reserves. The Company's Articles of Association allow the Company to make distributions from any of its distributable reserves, both capital and revenue. For the dividend relating to FY21, although there are sufficient revenue reserves to cover the shortfall mentioned above, the Board has chosen to make part of the distribution from capital reserves for reasons explained below. Excluding the C share issue, between the beginning of FY21 and the second interim ex-dividend date on 6 January 2022, 82.1m new ordinary shares were issued or re-issued from treasury. Accounting convention requires that the proceeds from the issue of these shares are accounted for wholly as capital. However, the NAV at which they were issued to new holders in fact comprises both the capital value of the underlying portfolio and any accrued but undistributed earnings at the issue date and therefore comprises elements of both income and capital. When these new ordinary shares subsequently rank for a dividend, Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- the dividend is accounted for wholly from revenue even though part of the dividend has effectively been “purchased” at the issue date and recorded in the capital account. The Board has therefore provided for this “purchased” part of the dividend, which can be accurately calculated, to be deducted from the special distributable reserve rather than revenue reserves. The Board believes this accounting approach captures the “purchased” income portion of the NAV, which was recorded as capital at the time of issue, and helps protect the revenue reserves built up historically from the impact of share issuance. During FY21 and up to the ex-dividend date for the second interim dividend on 6 January 2022, income received into the Capital account from shares issued out of the Company's treasury account and through the shareholder authority amounted to £831,000. The Board has therefore decided to account for this amount in the second interim dividend through distributable capital reserves. Looking forward, the Board expects the portfolio's underlying earnings to continue to recover as economies learn to live with COVID and the financial sector benefits from favourable tailwinds outlined in the Outlook below. The Board, together with the Manager, will continue to assess the likely income capability of the portfolio in a post-COVID environment to determine the appropriate longer-term distribution level. # Costs Over the past two financial years the biggest drivers of movements in expenses as a percentage of NAV have been the significant changes in shares in issue, the growth in NAV from performance, and the Investment Manager's compensation including the performance fee accrual. Since the Company's reconstruction in April 2020 the performance fee is calculated as 10% of the excess performance over the total return of the benchmark plus a hurdle of 1.5% p.a. The fee is calculated on performance since the reconstruction and is accrued and only paid at the time of the five yearly tender. Due to the significant growth in the share capital during the year under review, the current calculation methodology presented an unintended outcome for the performance fee accrual. In order to address this, the Board worked with the Manager to amend the calculation to ensure that the performance fee accrual purely reflects investment performance as intended and is not distorted by share capital changes. This revised methodology has resulted in a reduction in the performance fee accrual in FY21. Any performance fee accrual can be reduced by subsequent underperformance of the benchmark plus hurdle rate measured over the five year period. Note 29 provides further detail. At the time of the Company's reconstruction in 2020, the Manager agreed to a reduction in their base fee from 0.85% per annum of the lower of the Company's market capitalisation and NAV, to 0.70% per annum of the Company's NAV. This helped to mitigate the impact on the ongoing charges ratio ("OCR") of the significant decline in NAV and shares in issue following the reconstruction in that year. In FY20 the relatively low average NAV following the tender resulted in the OCR (excluding performance fees) rising to 1.09%. The substantial growth in the Company's NAV in FY21 has had a positive effect in reducing the OCR (excluding the performance fee) to 1.02%. Including the performance fee accrual, the OCR has fallen from 1.74% to 0.98%, reflecting the reduced performance fee accrual in the year under review. The Board continues to work with the Manager to ensure that any discretionary spending represents value for money for shareholders and the Board seeks to minimise ongoing expenses wherever possible. # Board Succession The Company was launched in June 2013 with three Directors. A fourth Director, Simon Cordery, joined the Board in July 2019. The tenures of the three original Directors – Ms Elliot, Ms Hart and myself – are approaching the recommended maximum tenure of nine years, although the AIC Code allows companies with a formal policy to extend the period for the Chair to ease transition. In my statement last year I described the succession plan the Board had developed to provide refreshment in a managed way while being sensitive to appropriate diversity and experience mix. The plan was tabled to begin in 2021 and conclude in 2023 in order to ensure sufficient retention of Company knowledge at any one time and to avoid a cliff-edge of Director departures in the future. As noted above, phase one of this plan was concluded with the appointment in November 2021 of Cecilia McAnulty as Audit Chair-elect to replace Joanne Elliot who will step down from the Board following the AGM in April 2022. Subsequent to this, the Board will move to the appointment of a new Director to replace Katrina Hart, to be completed by the end of 2022. At that point the Board will review its needs before completing the succession plan in 2023. In advance of her retirement from the Board I would like to thank Joanne for her service. Joanne has been an excellent colleague and an outstanding Audit Chair, bringing her deep knowledge of the investment trust industry and her rigorous diligence to the role. As a member of the Board, Joanne has been our conscience, a constant and consistent advocate of shareholder interest and maximising shareholder value. Joanne takes with her the very best wishes of all who have shared the Polar Capital Global Financials Trust plc journey. # Environmental, Social and Governance (ESG) The transition to Net Zero represents a seismic transformation for capital markets, bringing both unprecedented opportunities and threats. Providers of finance, including Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc --- Chairman's Statement continued banks, are playing a critical role in achieving Net Zero goals. The Board welcomes the escalating expectations placed on the financial community to adopt more sustainable and inclusive behaviour and business practices. As well as delivering better outcomes for society as a whole, the Board believes that ESG factors will increasingly drive successful investment performance. The Company outsources all its business operations and therefore has little direct control over any environmental and social deliverables. Instead, it works with and through its suppliers to better understand their ESG strategy. Specifically, during the course of the past year the Board has continued to engage with the Manager to monitor progress on their adoption of ESG principles in both their investment process and their corporate conduct; has included ESG factors in its risk map as standalone risks; and has engaged with third party suppliers on their Task Force on Climate-Related Financial Disclosures (TCFD). Further detail is provided in the Manager's Report and the ESG Report within the Annual Report. The Board believes that this journey is only just beginning, driven by a deepening of society's expectations and regulation. The Board will continue to monitor and review its progress against these expectations and respond accordingly. # Outlook The outlook for the year ahead at the time of writing would seem to be focused on two key drivers – inflation and COVID. The debate on inflation has – like that concerning the virus – centred on whether its upsurge can be characterised as elevated but transitory, or elongated and stubborn. While the health battle is hopefully approaching its closing stages, the challenge facing central bankers to address rising inflation may only be beginning. As fiscal policy makers continue to focus on the cyclical and social fallout of the pandemic, there are early signs that central bankers are beginning to blink in their standoff with rising inflation. Among the 32 or so central banks that have already started to raise official rates, the Bank of England was the first of the major central banks to move rates higher. The sharp pick up in non-wage inflation, unexpected supply disruptions in key markets and products, and the tightening of certain parts of the labour market do not seem to be a local story. The risk is that these pressures will be reflected in wage inflation, making the pick-up in general prices more severe and enduring. This is what many central bankers are now focusing on. Importantly, the language from the Federal Reserve has clearly changed. Having been firmly in the 'transitory' camp on inflation, the Federal Reserve has removed this from its guidance and is now openly planning for a tapering in its asset purchases followed by a programme of official interest rate rises, and eventually moving to reduce the central bank's highly bloated balance sheet. The ECB, for the time being, is lagging but commentators expect its resistance to be tested by evidence of the effect of its policy stance on inflation, economic recovery and the Euro. In January 2022, Eurozone inflation rose to 5%, the highest level recorded over the more than 20-year life of the single currency, while the US reported 7%, representing a four-decade high. Banks remain the largest component of the financials sector. Their strong performance in FY21 reflected their original conservatism in provisioning for pandemic related loan losses in relation to the resilience they demonstrated subsequently, and to their positive sensitivity to rising interest rate expectations. Since the global financial crisis in 2008, banks in general have been on a long path to rebuilding capital buffers, enhancing the quality of their balance sheets and improving their operational leverage. In the near term COVID and the outlook for inflation and interest rates are likely to be more significant drivers of fortunes for banks and the sector as a whole. Uncertainties over the pandemic and responses remain, although it appears that many governments and ways of life are moving towards a virus cohabitation rather than elimination reality. This would leave the door open to continued economic recovery with the accompanying inflation concerns. It seems that we may be at an important turning point in the interest rate cycle and in the extraordinarily accommodative stance of the central banks that matter. The level of global interest rates and bond yields has arguably been at a disequilibrium low level for some time, reflecting the presence of humungous asset buyers at any price, prepared to expand central bank balance sheets without any limit. This has resulted in oceans of liquidity which has provided rocket fuel for financial asset markets, to the point where arguably risk has been systemically mispriced. It has also had collateral consequences such as the rise of crypto currencies which have been in part a response to the debasing of fiat currencies by central banks and which have taken on a life of their own as a beneficiary of limitless liquidity and the disequilibrium in the pricing of risk. Defining an equilibrium level for interest rates is not straightforward. However, it is unlikely to be at a level where a number of key short-term rates and major longer bond yields are trading at negative or paltry levels; more so when evidence of rising inflation and tightness in key labour and product markets dominates headlines. Traditionally banks receive more support from a steepening of the yield curve than from the absolute level of yields. This Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- time many banks may be beneficiaries of a rise in rates all along the maturity range, whatever the impact on the shape of the yield curve. For quite some time banks have seen their capital buffers and profits challenged by low or negative short-term rates. Faced with the liquidity piling up on their books following central bank asset purchase programmes, and the paltry rates available on longer term lending/investing which does not adequately reward risk, banks have had little option but to take the pain of short-term placements at penal rates. A rise in short term rates will feed straight into the bottom line of banks from the large liquidity pools on their balance sheets, while a rise in longer term yields will reward better their lending and investment risk taking. The leverage banks experience in a rising interest rate environment may never have been so rewarding as it is in the current cycle. This leverage is described in more detail in the Manager's Report. Of course, the sector is more than banks, comprising insurance companies, diversified financials such as investment banks, asset managers and stock exchanges, as well as FinTech companies. Although not all are as sensitive to interest rates as the banking sector, they generally respond well to a recovering economic background. A number of new players have also entered the market, typically in the FinTech sector, offering digitally-driven transaction services, brokerage platforms and custody services. Although carrying the risks inevitable in start-ups and young enterprises, they are helping to redefine banking products to the benefit of all participants. Rather than being disrupters that threaten the traditional banks, FinTech companies are likely to see not only significant consolidation, but also their futures within or in partnership with the mainstream banks. The combination of digital solutions that meet the new expectations of customers at the core of FinTech offerings, coupled with the capital, client base, risk taking capacity and experience of traditional banks, will help power performance of the sector as a whole. Overall, the sector is set to be one of the major beneficiaries of a return to normal, not just in the way of life but also in asset markets and prices. Despite the generally constructive sentiment towards the sector, reports that as many as 75% of FinTech start-up ventures fail; the experience of Danske Bank with its Estonian subsidiary; Credit Suisse's missteps with Greensill Capital and Archegos; and the issues arising in Chinese property companies show the importance of stock picking. The Company benefits from a dedicated team of financial specialists who have extensive experience in the sector and a proven investment process. They are able to take advantage of the Company's flexibility to invest globally, including in emerging markets where they have particular knowledge, as well as to deploy leverage tactically. The Board believes that the Company is in a good position to translate the current favourable tailwinds for the sector into shareholder value. The Board has always placed high value on engagement with shareholders. At times, such as around the reconstruction of the Company in April 2020, these contacts have brought significant benefits to the Board's stewardship of the Company. Our AGM is scheduled for 7 April 2022 at the offices of Polar Capital in London, dependent on any COVID restrictions that may be in force at that time. The Board is very much looking forward to meeting shareholders in person once again. Robert Kyprianou Chairman 16 February 2022 Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 11 --- # Board of Directors ![img-12.jpeg](img-12.jpeg) ## Robert Kyprianou Independent Non-executive Chairman ### Skills and Experience Robert was formerly the CEO of AXA Framlington until his retirement in September 2009. Previous appointments include: independent non-executive director of Gartmore Group Limited and Aviva Investors; Global Head of Fixed Income, and later Deputy CEO and Global Head of Securities at AXA Investment Managers SA; Business Head and Global Head of Fixed Income at ABN AMRO Asset Management Ltd and Head of Portfolio Management at Salomon Brothers Asset Management Ltd. ### Committee Memberships Chairman of the Board, Nomination and Remuneration Committees. Member of the Audit and Management Engagement Committees. ### Other Appointments Robert is a director of Eurobank Cyprus Ltd, Eurobank Private Bank Luxembourg SA and senior independent non-executive director of Pimco Europe Limited. ### Board Rationale for supporting re-election Robert brings a wealth of investment and strategic experience to the Board along with detailed and effective leadership skills; as well as understanding of investment company matters. The Board has and continues to value the contribution made by Robert to the running of the Company. During the year, Robert has rallied the Board and Managers to meet multiple times outside of formal Board meetings to ensure communication was effective and current. Robert continues to lead the Board with an inclusive and engaging manner and his nomination for re-election as Chair and non-executive Director is supported by both the Board and the Managers. | Date appointed | 7 June 2013 | | --- | --- | | Share Interests | 93,368 shares | | Annual Remuneration | £37,000 | ![img-13.jpeg](img-13.jpeg) ## Joanne Elliott ACA Independent Non-executive Director ### Skills and Experience Joanne is currently CFO of the property team at Thames River Capital LLP and has been the finance manager for TR Property Investment Trust plc since 1995. Joanne previously held the position of Director of Property, Finance and Operations Europe at Henderson Global Investors. Previously she was Corporate Finance Manager with London and Edinburgh Trust plc and prior to that was an investment/treasury analyst with Heron Corporation plc. ### Committee Memberships Chair of the Audit Committee. Member of the Nomination, Remuneration and Management Engagement Committees. ### Other Appointments Whilst Joanne is a director of a number of private companies in connection with her role at Thames River Capital, she holds no other active external appointments. ### Re-election Joanne is not standing for re-election as she has reached her nine-year tenure. Joanne assisted the Board in the recruitment of her successor Cecilia McAnulty who will assume the role of Chair of the Audit Committee following the AGM. | Date appointed | 7 June 2013 | | --- | --- | | Share Interests | 30,000 shares | | Annual Remuneration | £31,500* | * Ms Elliott's remuneration is paid to Thames River Capital LLP in respect of her services as a Director. ![img-14.jpeg](img-14.jpeg) ## Katrina Hart Independent Non-executive Director ### Skills and Experience Katrina spent her executive career in investment banking, advising, analysing and commenting on a broad range of businesses. Initially working in corporate finance at ING Barings and Hawkpoint Partners, Katrina then moved into equities research at HSBC, covering the General Financials sector. Latterly, she headed up the Financials research teams at Bridgewell Group plc and Canaccord Genuity, specialising in wealth and asset managers. Katrina was a non-executive Director of Premier Miton Group Plc, an AIM listed asset management group, from 2011 to 2020. ### Committee Memberships Chair of the Management Engagement Committee. Member of the Audit, Nomination and Remuneration Committees. ### Other Appointments Katrina is a non-executive director of Keystone Positive Change Investment Trust plc, Blackrock Frontiers Investment Trust plc and AEW UK REIT plc, each listed on the main market. ### Board Rationale for supporting re-election Katrina has extensive knowledge of the investment sector and serves on the boards of several investment companies, enabling her to bring a wider understanding and breadth of knowledge to the Company from across the investment industry. Katrina also brings corporate finance and broking experience to the Board, having spent many years analysing and commenting on a broad range of businesses operating in the financial sector. Katrina's re-election as a non-executive Director and Management and Engagement Committee Chair is supported by the Board and the Managers. | Date appointed | 7 June 2013 | | --- | --- | | Share Interests | 51,700 shares | | Annual Remuneration | £26,500 | Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- ![img-15.jpeg](img-15.jpeg) # Simon Cordery FCSI Independent Non-executive Director ## Skills and Experience Simon has over 40 years' experience working within financial services of which nearly 30 years have been focused on the wealth management industry. Most recently he was Head of Investor Relations and Sales at BMO Global Asset Management, where he spent almost 25 years in senior roles, and previously he held roles with Invesco Fund Managers, Jefferies & Co, Kleinwort Benson Securities and Rea Bros Merchant Bank. Simon has considerable and detailed knowledge of the investment trust industry and remains actively involved with the AIC. ## Committee Memberships Member of the Audit, Nomination, Remuneration and Management Engagement Committee ## Other Appointments No other current appointments. ## Board Rationale for supporting re-election Simon has extensive wealth management and marketing experience and detailed knowledge of the investment trust market having previously held the position of Head of Investor Relations & Sales for BMO Global's Investment Trust business. Simon actively participates in meetings and brings a new approach to investor and shareholder engagement with the ability to share expertise with the sales and marketing team of Polar Capital. Simon's re-election as a non-executive Director is supported by the Board and the Managers. | Date appointed | 1 July 2019 | | --- | --- | | Share Interests | 39,003 shares | | Annual Remuneration | £26,500 | ![img-16.jpeg](img-16.jpeg) # Cecilia McAnulty Independent Non-executive Director ## Skills and Experience Cecilia is an experienced non-executive director and chartered accountant with almost 30 years' investment and financial services experience. Her executive career included senior investing roles with Royal Bank of Scotland, Barclays Capital and Centaurus Capital and encompassed a broad range of asset classes including public and private debt and equity. Her current non executive roles include Audit Chair and NED at Northern 2 VCT PLC, a listed investment trust investing private equity in early stage companies, and an Independent NED at Alcentra Limited, a global investment manager of sub investment grade credit owned by BNY Mellon and managing $40bn of AUMs. ## Committee Memberships Member of the Audit, Nomination, Remuneration and Management Engagement Committee ## Other Appointments Cecilia is a non-executive director of Northern 2 Venture Capital Trust plc, Alcentra Limited and a member of the Industrial Development Advisory Board of the Department of Business, Energy and Industrial Strategy. ## Board Rationale for supporting election Cecilia was appointed to the Board on 1 November 2021. She brings to the Board her experience of other investing strategies, including debt markets which are intrinsically linked to the functioning and health of financial companies globally. In addition, her qualification as a Chartered Accountant and her knowledge and previous experience as Audit Chair of a UK investment trust is highly relevant. Cecilia has been a keen participant in meetings since joining the Board and her election as a non-executive Director is supported by the Board and the Managers. Cecilia will assume the role of Chair of the Audit Committee following the retirement of Joanne Elliott from the Board. | Date appointed | 1 November 2021 | | --- | --- | | Share Interests | - | | Annual Remuneration | £26,500 | Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 13 --- # Investment Managers ![img-17.jpeg](img-17.jpeg) ## Nick Brind Co-Fund Manager ### Date appointed Nick joined Polar Capital following the acquisition of HIM Capital in September 2010. ### Skills and Experience Nick is also the manager of the Polar Capital Income Opportunities Fund. He has 28 years' investment experience across a wide range of asset classes. Prior to 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 financial companies. Previously he worked at Exeter Asset Management and Capel-Cure Myers. Nick has a Masters in Finance from London Business School. Nick has co-managed the Company's investments since launch in 2013. ![img-18.jpeg](img-18.jpeg) ## John Yakas Co-Fund Manager ### Date appointed John joined Polar Capital following the acquisition of HIM Capital in September 2010. ### Skills and Experience John is also the manager of the Polar Capital Financial Opportunities Fund. He has over 30 years' experience in the financial services industry having worked for HSBC as a commercial banker in Hong Kong and Fitch IBCA in London covering European Financials. He was head of Asian research at Fox-Pitt, Kelton establishing their office in Hong Kong. In 2003 he joined Hiscox Investment Management which later became HIM Capital. He has an MBA from London Business School and studied at the London School of Economics (BSc Econ). John has co-managed the Company's investments since launch in 2013. ![img-19.jpeg](img-19.jpeg) ## George Barrow Co-Fund Manager ### Date appointed George joined Polar Capital in September 2010 as an analyst in the Financials Team. ### Skills and Experience George is a co-manager on the Polar Capital Financial Opportunities Fund, with John Yakas, and the Polar Capital Global Financials Trust, with John and Nick Brind. 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. George joined Nick and John as co-manager of the Company in December 2020. 14 Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- # Expert Knowledge ![img-20.jpeg](img-20.jpeg) --- # Investment Manager's Report ![img-21.jpeg](img-21.jpeg) Nick Brind Co-Fund Manager ![img-22.jpeg](img-22.jpeg) John Yakas Co-Fund Manager ![img-23.jpeg](img-23.jpeg) George Barrow Co-Fund Manager *Shareholders should note that the Investment Manager's Report was written prior to the invasion of Ukraine and whilst the information contained within the report has been updated where possible, this will have been superseded in some places by the current uncertainties and market volatility. ## Performance The period covered by this report was an excellent one for broader financial markets and the sector. The news in November 2020 of the efficacy of Pfizer's coronavirus vaccine, in collaboration with BioNTech, as well as those being developed by others provided the catalyst for sentiment to turn much more positive on the sector. A quicker rollout of vaccines than had been previously expected led to a belief that economies would open up more quickly. Coupled with continued positive economic data underpinned by governments' and central banks' fiscal and monetary stimulus, financials, and in particular bank stocks, were seen as key beneficiaries of the recovery. Consequently, equity markets were very strong, rising by 20.6% over the year as illustrated by the MSCI ACWI Index. Against this background, financials outperformed wider equity markets, with the Trust's net asset value total return rising by 27.9% while our benchmark index, the MSCI ACWI Financials Index, rose by 27.0%. ## Performance of the Company vs benchmark indices over the year and since inception | | One year | Since inception | | --- | --- | --- | | NAV | 27.9% | 121.8% | | Chain-linked benchmark | 27.0% | 120.0% | | MSCI ACWI Financials Index | 27.0% | 109.2% | Figures are sterling total return calculated with dividends reinvested on ex-dividend dates. MSCI ACWI Financials Index is adjusted to exclude real estate securities prior to their actual removal in August 2016. See note 4 on page 5 for further information on the Chain-linked benchmark. Our bank holdings, in particular our holdings in US regional banks, were the biggest driver of absolute and relative performance of the Trust, with gearing also being a positive contributor to returns. However, unlike all previous years, when stock selection was a positive driver of performance, stock selection was a drag on performance, with holdings in payment companies and the quality bias of the portfolio weighing on performance. The biggest stock contributors to performance included holdings in Signature Bank, Blackstone and EastWest Bancorp. Laggards included Alibaba Group, Mastercard and Lancashire Holdings. ## NAV total return performance (%) ![img-24.jpeg](img-24.jpeg) Source: Bloomberg 1 December 2020 to 30 November 2021 16 Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- # Investment Review ## Markets Equity markets performed extremely strongly over the year, once again led by the US. While there were ongoing concerns around more transmissible COVID-19 variants and the impact of rising inflation, these were not sufficient to offset the positive sentiment generated by the success and speed of the rollout of vaccines, recovery in economic growth and strength in corporate earnings. However, against this background Japanese and emerging markets lagged wider equity markets, the latter impacted by concerns around the Chinese property market and worries over a more interventionist approach to regulation in China, which hit several sectors. Government bond yields consequently rose over the period with yield curves steepening as central banks continued to indicate that they would keep monetary policy loose for the foreseeable future despite concerns around inflation pressures. As the "transitory" debate shifted, with inflation continuing to surprise on the upside, there was some softening in government bond yields and a flattening of the yield curve towards the end of the period on expectations that the US central bank would follow other central banks that have raised interest rates, with a consequent impact on growth and inflation in later years. ## Sector Banks led the sector recovery over the first half of the year, to be overtaken in the second half by Diversified Financials. The former's outperformance was driven by strong results that significantly exceeded analyst expectations due to lower provisions for loan losses as well as continued strong investment banking and trading income. Positive earnings revisions and increased investor interest due to the sector's sensitivity to rising bond yields against the background of rising inflation expectations provided a strong tailwind to share prices. ## Financial sub-sector total return ![img-25.jpeg](img-25.jpeg) Source: Bloomberg - MSCI/Factset US banks led the rally in bank shares, followed by those in Canada and the Eurozone, reflecting the stronger economic tailwinds in the US from a faster rollout of vaccines than nearly all other major economies, more significant fiscal stimulus and sharper rise in government bond yields than most other countries, reflecting expectations of a tightening in monetary policy. Conversely Australian, Japanese and emerging market banks lagged the rally in bank shares, having performed much more strongly over the initial stages of the pandemic and recovery, in part reflecting those countries' more robust handling of it from a health perspective. Not surprisingly, the largest rise in individual banks' shares were a number in the US including Signature Bank, SVB Financial and Wells Fargo, all held in the portfolio. Other strong performers included TCS Group, a Russian bank which is also held, as well as a number of Israeli and Polish banks not held by the Trust. The weakest performing banks' shares were for the most part emerging market banks in China and Turkey, the latter suffering from the collapse in the Turkish Lira as credibility in Turkey's central bank faltered following a wave of firings and resignations as it was forced to cut interest rates. Indian banks also came under pressure due to their high valuations. Diversified Financials, which includes asset managers, investment banks, consumer finance companies, custody banks, information services and stock exchanges, performed extremely strongly. Alternative asset managers led the sector on the back of continued strong fund inflows and buoyant financial markets with Blackstone, EQT, KKR and Apollo seeing the largest rise in share prices, the former a longstanding holding. Traditional asset managers, which have struggled in recent years on weaker investment performance and pressure on fees as flows have gone to passive funds or alternative asset managers, saw a sharp turn-around in flows which led to a strong rally in their shares. ## Regional bank total return ![img-26.jpeg](img-26.jpeg) Source: Bloomberg. KBW Banks Index, KBW Regional Banks Index, S&P TSX Banks Index, STOXX Europe Banks Index, FTSI. All-Share Banks Index, S&P ASX Index, MSCI Emerging Market Banks Index and TOPIX Banks Index. Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 17 --- # Investment Manager's Report continued Credit Suisse fell on the back of its exposure to Greensill Capital, which collapsed during the year, as well as sustaining large losses from the default of Archegos, a hedge fund. But it was the exception as investment banks, in particular Goldman Sachs and Morgan Stanley, the latter a holding, performed well benefiting from a jump in investment banking and trading revenues on the back of strong equity markets, a record year for IPOs, SPACs and a jump in M&A. Information services companies, such as MSCI, S&P and Moody's also performed well. Laggards included London Stock Exchange, which fell on weak guidance on costs, as well as Japan Stock Exchange and B3, owner of the Brazilian stock exchange. Insurance stocks, in particular property & casualty insurance companies, lagged the sector materially, despite decent results and a continued increase in insurance rates. That said, insurance brokers such as Marsh & McLennan and life assurance companies performed well, the latter in part due to their greater sensitivity to financial markets and the pick-up in M&A activity. Non-life insurance companies suffered as they are seen as more defensive, so not benefiting from investors' positioning either for growth in sectors such as technology or more cyclical sectors such as banks. Furthermore, rising inflation and a higher incidence of large losses from hurricanes etc. also hit sentiment, along with the potential for climate change to increase the frequency and severity of such losses. Fintech companies performed poorly and lagged the rally in wider equity markets. MasterCard and Visa, the former being a holding, suffered over concerns around the delay to the resumption of cross-border travel but also worries about increased competition from new entrants. More Fintech companies, such as Lemonade in the US, Wise in the UK, Kakao Pay in South Korea and PayTm in India, IPO'd during the period. While a number have performed well, others fell sharply over the period and have been disappointing investments for public market investors so far. # Investment Activity At the beginning of the period the portfolio had been positioned to take advantage of the recovery in economies on the basis that successful vaccine results would allow governments to relax restrictions and economies to open up. Gearing had been increased and the exposure to the banks sector raised to the highest it has been since the Trust's inception, at the expense of insurance and payment companies. During the period, the biggest shift was to reduce the Trust's exposure to emerging market financials by around 10%, due in part to rising numbers of COVID-19 cases in several Asian countries and our concern that new lockdowns had yet to feed through into economic data, although we have selectively been adding to holdings more recently. The other key reason for this shift was that momentum in markets was shifting towards the US, Europe and other developed markets as they rolled out vaccines and there was increasing confidence about the recovery in their economies. As a result, proceeds from the sales of stocks including China Merchants Bank, KaskornBank, Bank of the Philippine Islands and Axis Bank were used to increase our exposure to Europe and developed Asia. Holdings in Commonwealth Bank of Australia, BBVA, Sumitomo Mitsui Financial Group, ING Groep and Nordea were purchased, although the former two have since been sold. Other investment activity included introducing a holding in Allfunds Group, a European investment platform, which was purchased on its IPO, while more recently new holdings were acquired in the non-voting shares of Schroders, Bandham Bank in India, and Shinhan Financial, a South Korean bank. We also changed our mix of US banks slightly following the strong performance of our US regional bank holdings, locking in some of the profit. Finally, we continued to reduce the Trust's exposure to fixed-income securities as the yields on offer continued to fall. Gearing, which began the year at 12.7%, was reduced on the back of the strength in equity markets and finished the year at 5.2%. During the year the inflows from the issue of shares from treasury were used to add selectively to certain holdings. The larger proceeds from the C-share issue in June were used to replicate the portfolio on a pro-rata basis, with the exception of our holding in Atom Bank, which is unquoted, and a couple of the smaller less liquid holdings, prior to the conversion of C-shares and merger of the two pools of assets in August. We added to our holding in Atom Bank in May on the back of a capital raise and the bank has since announced that it has achieved its first monthly operating profit. In February 2022, it announced a further successful capital raise. 18 Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- # Active Share Active share, which is a measure of how actively managed a portfolio is, with 0% reflecting a fund that replicates its benchmark and 100% reflecting no overlap with the benchmark, fell from 83.1% to 76.5% during the period under review. This change is due to some of the changes highlighted on the previous page. ![img-27.jpeg](img-27.jpeg) The high active share in part reflects our ownership of companies, which we consider to be part of the wider financials universe but which are not included in the Trust's benchmark. Examples include payment companies or HDFC Bank, India's largest private bank companies, which due to restrictions on foreign ownership do not meet the threshold required by MSCI for index inclusion. We also have significant overweight holdings in a number of smaller and mid-cap US banks but no holdings in some of their much larger peers such as Citigroup and US Bancorp. # Outlook ## Inflation, bond yields and interest rates "You'll notice I brought a prop to the lectern. It's a jar with the word 'transitory' written on it. This has become a swear word to my staff and me over the past few months. Say 'transitory' and you have to put a dollar in the jar." Raphael Bostic, President and CEO of the Federal Reserve Bank of Atlanta, 12 October 2021 The level of interest rates is the single most important driver of asset prices and therefore critical in decisions on positioning between different asset classes and sectors. The recent uptick in inflation has been seen by the market if not as transitory then as something that will subside, based on investor surveys as concerns around supply-chain issues start to abate. Nevertheless, central banks globally have started raising interest rates, the fastest rate in over 15 years. Against this background financials, in particular bank shares, have outperformed as they are one of the biggest beneficiaries of rising interest rates given the boost to their profitability. Banks today have balance sheets which are much more sensitive to rises in interest rates than previously due to the actions of governments and central banks since the onset of the pandemic. For example, a 1% increase in interest rates over the course of a year would, all things being equal, result in the average earnings of US banks rising by over 15%. But as not all loans reset immediately when interest rates rise then the impact in the second year would be an increase to above 20% rise in their earnings. For Japanese banks and some European banks, the impact would be even greater reflecting their low level of profitability due to the current low or negative level of interest rates in their countries but almost all banks benefit from rising interest rates. So if interest rate expectations continue to rise, then we would expect the sector to follow. ## 2022 Sensitivity of Profit before tax to Rates +100bps ![img-28.jpeg](img-28.jpeg) Source: Company filings, Bloomberg, Autonomous, November 2021 Furthermore, because the sector is the most sensitive to rising bond yields it also provides diversification benefits to some of the faster growing sectors at this point in the cycle, such as technology, which have been extremely profitable for investors. While we see significant opportunities and attractions to investing in Fintech, an investor who solely invests in a technology fund, an AI fund and a Fintech fund to benefit from the disruptive trends and growth in those sectors is not getting any diversification benefits. Conversely, the Trust's portfolio has a broad exposure to the financial sector, which while it includes exposure to Fintech, will still benefit if economies continue to recover and reflate. Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 19 --- # Investment Manager's Report continued Correlation of share prices of bank shares to that of other sectors ![img-29.jpeg](img-29.jpeg) Source: Polar Capital, Bloomberg February 2021 ## US equity markets The other decision for investors is how to position themselves geographically. The extraordinary performance of US equity markets over the last ten years has resulted in US equity markets now representing 63% of global equity markets as illustrated by MSCI ACWI Index, well above the 24% that the US economy represents of global GDP. While some distortions can be put at the door of index providers, the statistic also reflects the global dominance of US technology companies and the higher profitability of US companies compared to their peers in other countries. We continue to find some of the most interesting banks in the US. Either because they operate in a niche or in faster growing regions of the US, they offer attractive growth opportunities with good profitability while exhibiting growth that we would only normally find in emerging markets where the penetration of financial services is much lower. Loan growth has picked up in the last quarter even among the largest banks in the US and, anecdotally, management teams have highlighted increasing queries from corporate customers. US bank year-on-year loan growth for US small and mid-cap holdings ![img-30.jpeg](img-30.jpeg) Source: Company filings, November 2021, PPP – Paycheck Protection Program. ## Fintech Fintech offers some of the most interesting areas of the sector but equally valuations reflect that opportunity with companies trading on significant premiums to the market and peers. For example, the recent IPOs of KakaoBank in South Korea and Nu Bank in Brazil, both digital banks, were valued respectively at $25bn and $45bn in December larger than the largest incumbents in both countries, namely KB Financial and Itau Unibanco, despite significantly lower market shares and profitability so far. We have been wary of balance sheet driven business models, and the likes of Funding Circle in the UK and Lending Club in the US have not performed as well as expected and have been disappointing investments for public investors, albeit now showing some improving trends. Similarly, in the insurance sector, the recent IPOs of Lemonade and Root have disappointed, despite their promise to disrupt the incumbent sector, with share prices down materially. Equally, Buy Now Pay Later firms such as Klarna, Afterpay and Affirm have achieved huge growth, as they are seen as disrupting the credit card industry, and shareholders have been rewarded with strong rises in valuations. As a result, the attraction of the business model has led to Block, a payments company, to acquire Afterpay for US$29bn in an all-stock transaction and Amazon to announce a tie-up with Affirm. However, some uncertainty around future regulation has seen share prices weaken on the back of an inquiry by a US regulator, exacerbated by the rotation out of growth stocks in recent months. Listed UK investment platforms such as Hargreaves Lansdown and AJ Bell have significantly lagged equity markets, unlike Charles Schwab in the US, due to lower trading in recent months and cost pressures. However, the acquisition of Interactive Investor by abrdn and Nutmeg by JPMorgan highlight the value that incumbents see in these platforms long-term as they look to tap into long-term demand for investment products and pressure to invest in Fintech to protect their businesses. Our exposure to Fintech remains for the most part focused on the payments sector where our largest holdings have been in Mastercard, Paypal Holdings and Adyen, the latter sold during the year following very strong share price performance. We like the business models and secular growth trends from expansion in e-commerce and shift from cash to card payments and we would expect that to continue, notwithstanding competition from new entrants. As balance sheet Fintech models mature and become better at pricing risk and capturing deposits, we expect some may start appearing in the portfolio partly because we take a diversified approach to investing in this subsector. The technology sector is strewn with past leaders who have Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- now disappeared and it has consolidated around a few large players who control the ecosystem. We don't expect Fintech to be any different but the current environment remains very dynamic. # 15 years on from the financial crisis On 5 December 2006, 15 years ago, HSBC Holdings gave the first hint of trouble to the market on its US mortgage business in what would morph into the biggest financial crisis since the 1930s. Two months later, in February 2007, the conservative lender warned on profits, raising provisions by $2bn, as sub-prime borrowers in the US were hit by much higher interest costs on their adjustable-rate mortgages as initial teaser rates fell away. The seriousness of the situation was not appreciated with the bank's shares falling by a mere 1.5% that day in December and by even less on the February announcement. US bank share prices were similarly unaffected. HSBC was widely criticised at the time in 2002 for its acquisition of Household Finance, a US sub-prime lender that was the driver of its woes. However, the strength of its balance sheet meant the bank weathered the global financial crisis well, so well in fact that anyone who had bought its shares on that day in 2006, after taking into account dividends, would not have lost any money, assuming the shares had been held to the end of 2009. By comparison, the average US or European bank's share price was still down by over 50%, with many much worse. At that time the "smart" money in Wall Street was also packaging up and selling, to unsuspecting German bank treasury departments and Norwegian municipalities, sub-prime mortgages and an alphabet soup of structured US Household Debt Service Ratio ![img-31.jpeg](img-31.jpeg) Source: Board of Governors of the Federal Reserve, Longview Economics, Macrobond products. But either way, even if Chuck Prince had stopped dancing* then, it was too late for regulators to have acted even if they had seen what was coming. For example, the Bank of England had reduced its staffing in its financial stability department in 2004 so it was not surprising it did not see what was coming. In a May 2007 report it stated that "the UK financial system remains highly resilient". Moving on to today, the resilience of the banking sector during the pandemic highlights the steps regulators have taken since the global financial crisis that have made a significant difference. Today, banks are more like HSBC in that they have strong balance sheets, plenty of liquidity and are more cautious in their lending appetite. Consequently, in 2020 they were able to facilitate government-guaranteed lending programmes such as CBILs in the UK and Paycheck Protection Program "PPP" loans in the US and are well positioned to benefit from the continuing recovery of economies, notwithstanding any short-term impact from COVID-19 variants. Furthermore, US household deposits are by some calculations over $3 trillion more than they would otherwise have been if not for the pandemic. More importantly, as a consequence of the fall in interest rates and sharp fall in the levels of household debt since 2007, debt service ratios are at 40+ year lows. Equally corporate cash levels over the last year have hit levels not seen for 70+ years. Thanks in part to government and central bank largesse, consumers and corporates are in incredibly robust health and therefore defaults should not rise in any meaningful way in the short-term. US Household Bank Deposits ![img-32.jpeg](img-32.jpeg) Source: Board of Governors of the Federal Reserve, Longview Economics, Macrobond Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 21 --- # Investment Manager's Report continued ## Risks All things being equal this would suggest that growth, short-term impact of the latest COVID-19 variant aside, should be supportive of the sector looking forward, despite the flattening of the yield curve and volatility in financial markets in 2022. Failing that, if economic growth does disappoint, the risk of individuals or corporates defaulting should be much lower. In addition, banks continue to have significant provisions that they set aside during the pandemic for a much worse out-turn for growth and unemployment which would help soften any short-term weakness in revenues and earnings. Either way, the vast majority of companies in the sector remain sensitive to economic cycles and financial markets. US Bank Loan Loss Reserves vs Non-Performing Assets ![img-33.jpeg](img-33.jpeg) Source: Company filings Nevertheless, this will likely be overshadowed by the recent shocking events in Ukraine which will add to the uncertainty around the outlook for growth, inflation and interest rates especially in light of the potential ramifications for energy markets. Financial stocks underperformed wider equity markets, on the news of Russia's invasion and subsequent response by US, European and other governments, led by a sharp fall in European bank shares as investors attempted to digest the ramifications. While history would suggest wars have limited long-term impact on financial markets, despite the tragic human cost, only time will tell. We expect greater disclosure around ESG issues will add to costs, especially for smaller businesses, but the regulatory headwinds which have affected the sector over the last 10 years have abated and there is much greater clarity on the outlook. Furthermore, some regulators have talked about the need to simplify regulations with the Bank of England admitting that some rules are overly complicated. As seen with BNPL, we would expect regulators to focus their attention on those parts of the sector such as non-bank lenders and Fintech that remain lightly regulated. ## Capital return In 2020 regulators in the UK and Europe suspended all dividends for banks as well as for some insurance companies while regulators elsewhere put in less onerous restrictions allowing banks to continue to pay dividends, albeit buybacks were suspended. In the US, the Federal Reserve allowed banks to restart buybacks in January 2021, and at the end of June restrictions limiting the payout ratios of banks to no more than their earnings in any one year were lifted, resulting in high single to low double-digit increases in dividends from the sector. UK and European regulators have similarly allowed dividends to resume and a number have announced large buybacks as they start to return the excess capital built up in 2020 and first half of 2021. Consequently, bank investors are benefiting from a sharp increase in the amount of capital returned to them through buybacks and dividends, in some cases reaching double-digit levels which should help underpin sentiment towards the sector. ![img-34.jpeg](img-34.jpeg) Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 23 # Summary Financials are inescapably a value sector even though there are companies within the sector that exhibit faster growth and consequently trade at much higher valuations, notably some of the faster growing asset management companies and data providers. Nevertheless, as market expectations for interest rates have increased sharply in 2022, the sector has benefited sharply outperforming wider equity markets as highly rated stocks have derated. Consequently, we remain constructive on the outlook for the sector. Valuations are inexpensive, especially after recent falls on the back of the Russian invasion of Ukraine, and still historically low relative to wider equity markets. While sentiment has understandably taken a knock, the reasons for owning the sector have not changed; namely strong balance sheets, liquidity, good profitability with the upside from higher interest rates, albeit at a slower pace than previously assumed, a positive tailwind for the sector underpinned by increased capital return through buybacks and dividends. Nick Brind, John Yakas & George Barrow 9 March 2022 ![img-35.jpeg](img-35.jpeg) We would draw shareholders attention to www.polarcapitalglobalfinancials trust.com for monthly factsheets, regular investment commentary and portfolio updates. *index performance figures are total return in Sterling --- # Investment Manager's Report – ESG ## Environmental, Social and Governance (ESG) ESG factors are integrated into the way we analyse companies as we believe they are a critical driver of long-term returns. Governance and risk management has always been an important component of our investment process as it sets the tone, along with culture, for how a business is managed and will perform in a stressed environment. We now also put more emphasis on environmental and social issues, for example, carbon emissions, financial inclusion, whistleblowing, diversity and so forth. We rely on a mixture of data from the likes of MSCI, Bloomberg as well as publicly available data from firms that undertake customer or employee reviews such as TrustPilot or Glassdoor and complaints data from the likes of the Financial Ombudsman Service. To this we can add disclosures from the companies themselves through their website, accounts and meetings we have had with management and investor relations. The availability and granularity of information at present remains patchy and will take time to improve, especially for smaller companies which are not yet sufficiently resourced to meet investor demands and for those outside Europe, which, for the most part, have been slower to react to the change in expectations. Unlike credit rating agencies, which provide fairly consistent views of individual companies' credit risk, the firms offering ESG ratings differ widely in their opinions, reflecting a lack of consensus. During the year we undertook a review of bank loan books to analyse exposures to thermal coal. For the majority of banks there was no data available, reflecting the likelihood that their exposure was negligible but for those that did it was significantly less than 0.5% of loan books, with the exception of a couple of South African banks where the exposure was 0.6% and 0.7%, respectively. In our portfolio only HSBC disclosed any meaningful exposure at US$1.35bn or 0.1% of its assets and has since announced it would phase out all of its investment in coal by 2040 at the latest. In May 2021, the European Banking Authority (EBA) published the results of an EU-wide pilot exercise on climate risk, which indicated that more disclosure on transition strategies would be needed to allow more accurate analysis of climate risks. As a result, we expect the quality and comparability of data provided by the industry to improve materially. Indeed, we understand that the EU's Taxonomy Regulation requires EU banks to disclose qualitative information on taxonomy-eligible assets from 2022, with quantitative disclosure, such as the Green Asset Ratio, from 2024. ![img-36.jpeg](img-36.jpeg) Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 25 # MSCI # ESG Fund # RATING ![img-37.jpeg](img-37.jpeg) | CCC | B | BB | BBB | A | AA | AAA | | --- | --- | --- | --- | --- | --- | --- | Each fund or ETF scores a rating on a scale from CCC (laggard) to AAA (leader). The rating is based first on the weighted average score of the holdings of the fund or ETF. We then assess ESG momentum to gain insight into the fund's ESG track record, which is designed to indicate a fund's exposure to holdings with a positive rating trend or worsening trend year over year. Finally, we review the ESG tail risk to understand the fund's exposure to holdings with worst-of-class ESG Ratings of B and CCC. ## How the MSCI ESG Rating is calculated | | Portfolio | | --- | --- | | Weighted Avg ESG Score | 6.32 | | Adjustment | | | + ESG Trend Positive | 35.59% | | - ESG Trend Negative | 5.77% | | - ESG Laggards | 4.46% | | Adjustment Total | 25.36% | | Score Adjustment | 1.60 | | ESG Quality Score | 7.93 | | ESG Rating | AA | ## Corporate governance The Trust's weighted average percentage of independent board of directors is 80.1%, and its weighted average percentage of women on boards is 31.8%. ![img-38.jpeg](img-38.jpeg) ## Voting Record | Category | Number | Percentage | | --- | --- | --- | | Number of votable meetings | 88 | | | Number of meetings voted | 84 | 95.45 | | Number of meetings with at least 1 vote against, withheld or abstain | 27 | 30.68 | Source: MSCI, ISS # ESG Rating distribution of fund holdings 31% of the Trust's holdings receive an MSCI ESG Rating of AAA or AA (ESG Leaders) while only 5% receive an MSCI ESG Rating of B or CCC (ESG Laggards). ![img-39.jpeg](img-39.jpeg) ## Weighted average carbon intensity (tCO2e / $m sales) The Trust's holdings have very low carbon intensity, based on the weighted average carbon emissions per USD million sales. | VERY HIGH | HIGH | MODERATE | LOW | VERY LOW | | --- | --- | --- | --- | --- | ## Bottom 5 Rated Holdings | Security | Rating | Change | | --- | --- | --- | | Blackstone | B | ↓ | | Signature Bank | B | ↓ | | Pacific Premier Bancorp | B | ↓ | | East West Bancorp | BB | → | | Enterprise Financial Services | BB | → | Source: MSCI ## Top 5 Rated Holdings | Security | Rating | Change | | --- | --- | --- | | Intesa Sanpaolo | AAA | → | | Allianz | AAA | → | | Schroders NV | AAA | → | | Jupiter Fund Management | AAA | → | | HDFC Bank | AA | → | Source: MSCI ## Vote cast statistics | Votes for | 91.30% | | --- | --- | | Votes against | 4.26% | | Votes management say on pay | 4.35% | | Votes withheld | 0.09% | Source: MSCI, ISS --- # Attribution Analysis The top ten relative contributors to and the bottom ten relative detractors from performance versus the benchmark For the year ended 30 November 2021 ![img-40.jpeg](img-40.jpeg) Note: The Attribution Analysis of the relative and active positions represents the gross return of the Company's portfolio minus the benchmark return. Active positions – top ten and bottom ten active positions For the year ended 30 November 2021 ![img-41.jpeg](img-41.jpeg) Since Inception to 30 November 2021 ![img-42.jpeg](img-42.jpeg) Note: This represents the gross return of the Company's portfolio minus the benchmark return. This reflects the attribution effect where the Company's gross return is compared to the benchmark return. Total Attribution Effect is derived from the Relative Attribution Analysis, which decomposes the Excess Return (Gross) into the Allocation Effect and stock Selection Effect (Inc. Interaction). Allocation Effect refers to the portion of the Company's overall performance attributable to the Portfolio Manager's decision on taking different asset categories weights. Stock Selection Effect refers to the portion of the Company's overall performance attributable to the Portfolio Manager's decision on selecting individual securities. Interaction Effect refers to the performance attributable to the combination of allocation effect and stock selection effect. Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- # Ten Largest Investments As at 30 November 2021 | Ranking | | Stock | Sector | Country | Market Value £'000 | | % of total net assets | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2021 | 2020 | | | | 2021 | 2020 | 2021 | 2020 | | 1 | (1) | J.P.Morgan | Banks | North America | 26,539 | 9,190 | 5.8% | 5.5% | | JP Morgan Chase is the largest bank in the US, with a market capitalisation of US$450bn, and a presence in over 100 markets. It is the result of a combination of several banks including JP Morgan, Chase Manhattan, Bank One, Chemical Bank and Manufacturers Hanover. During the financial crisis the company also acquired Bear Stearns, one of the largest investment banks in the US and Washington Mutual, which at the time was the largest savings and loans bank in the US. | | | | | | | | | | 2 | (2) | Bank of America | Banks | North America | 18,455 | 5,658 | 4.0% | 3.4% | | Bank of America is the 2nd largest bank in the US with a market capitalisation of US$390bn. The bank's history dates to 1904 when it was founded as the Bank of Italy to service Italian immigrants in California. It was acquired by Nations Bank in 1998 and its name changed to Bank of America. During the financial crisis the bank acquired Merrill Lynch, one of the largest investment banks in the US. | | | | | | | | | | 3 | (4) | HDFC Bank | Banks | Asia (ex-Japan) | 13,111 | 5,317 | 2.9% | 3.2% | | HDFC Bank is the largest private sector bank in India with a market capitalisation of US$105bn. It was incorporated in 1994 in Mumbai before commencing operations the following year. It has a banking network of 5,430 branches and 15,292 ATMs spread across 2,848 cities and towns. | | | | | | | | | | 4 | (13) | Citizens Financial Group Inc. | Banks | North America | 13,086 | 3,421 | 2.9% | 2.1% | | Citizens Financial Group is one of the largest banks in the US with a market capitalization of US$23bn. Citizens provides commercial and consumer banking services across 11 states in the Northeast, Mid-Atlantic, and Midwest. After being bought by Royal Bank of Scotland (RBS) in 1988, Citizens Financial went on an acquisition spree, making more than two dozen deals. In 2014, RBS sold 25% of its stake in what was then one of the largest bank IPOs and sold its remaining stake in 2015. | | | | | | | | | | 5 | (11) | Arch | Insurance | North America | 12,572 | 3,489 | 2.7% | 2.1% | | Arch Capital Group operations began in 2001. Through organic growth and strategic acquisitions, Arch has evolved into a leading diversified specialty insurer and reinsurer writing insurance, reinsurance and mortgage insurance on a worldwide basis. It has a market capitalisation of $18bn. | | | | | | | | | | 6 | (5) | CHUBB | Insurance | Europe | 11,340 | 4,629 | 2.5% | 2.8% | | CHUBB, incorporated in Switzerland, has a market capitalisation of US$88bn and is the largest commercial insurer in the United States and the world's largest publicly traded property and casualty insurer. It operates in 54 countries as a global provider of insurance products which also include accident and health, reinsurance and life insurance. It was formed from the acquisition of CHUBB by ACE in 2016 which then adopted the CHUBB name. | | | | | | | | | | 7 | (12) | Toronto-Dominion Bank | Banks | North America | 11,305 | 3,422 | 2.4% | 2.1% | | Toronto-Dominion Bank is the second largest bank in Canada with a market capitalisation of US$150bn. It was formed by the merger of Bank of Toronto and The Dominion Bank in 1955 with both banks dating back to the 1850s. In Canada, the bank operates as TD Canada Trust while in the United States, the company operates as TD Bank, which is itself the 9th largest bank in the United States by total assets. | | | | | | | | | | 8 | (10) | PNC | Banks | North America | 11,112 | 3,717 | 2.4% | 2.3% | | PNC Financial Services is the 7th largest bank in the United States with a market capitalisation of US$88bn and operations in 19 states. The name originates from two of its predecessor banks, Pittsburgh National Corporation and Provident National Corporation which merged in 1983. In November 2020 it announced the acquisition of BBVA USA for $11.6bn acquiring a network of 637 branches across Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. | | | | | | | | | | 9 | (-) | Nordea Bank | Banks | Europe | 10,907 | - | 2.4% | - | | Nordea Bank is the largest bank in Scandinavia with a market capitalisation of $48bn. Operating across Sweden, Finland, Norway and Denmark as well as internationally it was formed by the merger in 2001 of Nordbanken, Unidanmark, Christiana Bank og Kreditkasse and Merita Bank. | | | | | | | | | | 10 | (25) | UBS | Banks | Europe | 10,279 | 2,849 | 2.3% | 1.7% | | UBS Group is a diversified financial services business offering wealth management, asset management, personal & corporate banking and investment banking services. It has a market capitalisation of $77bn and is the world's largest wealth manager in the world with US$3.3 trillion of assets under management. | | | | | | | | | | Top 10 investments | | | | | 138,706 | 30.3% | | | Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc 27 --- # Full Investment Portfolio As at 30 November 2021 | Ranking | | | | Market Value £'000 | | | % of total net assets | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2021 | 2020 | Stock | Sector | Country | 2021 | 2020 | 2021 | 2020 | | 1 | (1) | JP Morgan Chase | Banks | North America | 26,539 | 9,190 | 5.8% | 5.5% | | 2 | (2) | Bank of America | Banks | North America | 18,455 | 5,658 | 4.0% | 3.4% | | 3 | (4) | HDFC Bank | Banks | Asia (ex-Japan) | 13,111 | 5,317 | 2.9% | 3.2% | | 4 | (13) | Citizens Financial Group | Banks | North America | 13,086 | 3,421 | 2.9% | 2.1% | | 5 | (11) | Arch Capital | Insurance | North America | 12,572 | 3,489 | 2.7% | 2.1% | | 6 | (5) | CHUBB | Insurance | Europe | 11,340 | 4,629 | 2.5% | 2.8% | | 7 | (12) | Toronto-Dominion Bank | Banks | North America | 11,305 | 3,422 | 2.4% | 2.1% | | 8 | (10) | PNC Financial Services | Banks | North America | 11,112 | 3,717 | 2.4% | 2.3% | | 9 | (-) | Nordea Bank | Banks | Europe | 10,907 | - | 2.4% | - | | 10 | (25) | UBS Group | Banks | Europe | 10,279 | 2,849 | 2.3% | 1.7% | | Top 10 investments | | | | 138,706 | | | 30.3% | | | 11 | (20) | BNP Paribas | Banks | Europe | 9,616 | 2,982 | 2.1% | 1.8% | | 12 | (3) | Mastercard | Software & Services | North America | 9,466 | 5,657 | 2.1% | 3.4% | | 13 | (31) | East West Bancorp | Banks | North America | 9,452 | 2,411 | 2.1% | 1.5% | | 14 | (21) | OSB Group | Banks | United Kingdom | 9,350 | 2,961 | 2.0% | 1.8% | | 15 | (-) | Sumitomo Mitsui Financial | Banks | Japan | 9,264 | - | 2.0% | - | | 16 | (-) | Morgan Stanley | Diversified Financials | North America | 9,083 | - | 2.0% | - | | 17 | (17) | SVB Financial | Banks | North America | 8,600 | 3,152 | 1.9% | 1.9% | | 18 | (39) | Webster Financial | Banks | North America | 8,559 | 2,211 | 1.9% | 1.3% | | 19 | (40) | Enterprise Financial Services | Banks | North America | 8,424 | 2,209 | 1.8% | 1.3% | | 20 | (49) | Oversea-Chinese Banking | Banks | Asia (ex-Japan) | 8,269 | 1,985 | 1.8% | 1.2% | | Top 20 investments | | | | 228,789 | | | 50.0% | | | 21 | (14) | Housing Development Finance | Banks | Asia (ex-Japan) | 8,209 | 3,414 | 1.8% | 2.1% | | 22 | (8) | Bank Central Asia | Banks | Asia (ex-Japan) | 8,204 | 3,846 | 1.8% | 2.3% | | 23 | (-) | HSBC | Banks | United Kingdom | 8,153 | - | 1.8% | - | | 24 | (61) | Intesa Sanpaolo | Banks | Europe | 8,100 | 1,520 | 1.8% | 0.9% | | 25 | (16) | Blackstone | Diversified Financials | North America | 7,858 | 3,171 | 1.7% | 1.9% | | 26 | (6) | AIA Group | Insurance | Asia (ex-Japan) | 7,833 | 4,425 | 1.7% | 2.7% | | 27 | (22) | Signature Bank | Banks | North America | 7,712 | 2,922 | 1.7% | 1.8% | | 28 | (-) | PacWest Bancorp | Banks | North America | 7,640 | - | 1.6% | - | | 29 | (-) | Western Alliance | Banks | North America | 7,137 | - | 1.6% | - | | 30 | (-) | ING Groep | Banks | Europe | 7,108 | - | 1.6% | - | | Top 30 investments | | | | 306,743 | | | 67.1% | | | 31 | (34) | Allianz | Insurance | Europe | 7,079 | 2,370 | 1.6% | 1.4% | | 32 | (33) | Sampo | Insurance | Europe | 6,858 | 2,371 | 1.5% | 1.4% | | 33 | (-) | S&P Global | Diversified Financials | North America | 6,826 | - | 1.5% | - | | 34 | (7) | PayPal | Software & Services | North America | 6,773 | 4,205 | 1.5% | 2.5% | | 35 | (-) | Beazley | Insurance | United Kingdom | 6,767 | - | 1.5% | - | | 36 | (35) | Tisco Financial | Banks | Asia (ex-Japan) | 5,999 | 2,300 | 1.3% | 1.4% | | 37 | (28) | Wells Fargo | Banks | North America | 5,957 | 2,480 | 1.3% | 1.5% | | 38 | (-) | Pacific Premier Bancorp | Banks | North America | 5,839 | - | 1.2% | - | | 39 | (50) | Manappuram Finance | Diversified Financials | Asia (ex-Japan) | 5,624 | 1,946 | 1.2% | 1.2% | | 40 | (-) | Srisawad | Diversified Financials | Asia (ex-Japan) | 5,501 | - | 1.2% | - | | Top 40 investments | | | | 369,966 | | | 80.9% | | Polar Capital Global Financials Trust plc • Annual Report and Financial Statements 2021 --- Ranking Market Value % of total net £'000 assets | 2021 | 2020 | Stock | Sector | Country | 2021 | 2020 | 2021 | 2020 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 41 | (62) | Lancashire | Insurance | United Kingdom | 5,485 | 1,490 | 1.2% | 0.9% | | 42 | (-) | Bank for Foreign Trade | Banks | Asia (ex-Japan) | 5,475 | - | 1.2% | - | | 43 | (-) | Bank of NT Butterfield | Banks | North America | 5,240 | - | 1.1% | - | | 44 | (-) | Standard Chartered | Banks | United Kingdom | 5,129 | - | 1.1% | - | | 45 | (38) | Chaelee | Diversified Financials | Asia (ex-Japan) | 4,994 | 2,270 | 1.1% | 1.4% | | 46 | (-) | Sberbank of Russia | Banks | Eastern Europe | 4,910 | - | 1.1% | - | | 47 | (56) | Direct Line Insurance | Insurance | United Kingdom | 4,763 | 1,688 | 1.0% | 1.0% | | 48 | (32) | First Republic Bank | Banks | North America | 4,340 | 2,392 | 1.0% | 1.4% | | 49 | (-) | Bank Rakyat | Banks | Asia (ex-Japan) | 4,235 | - | 1.0% | - | | 50 | (54) | Grupo Financiero Banorte | Banks | Latin America | 4,232 | 1,758 | 0.9% | 1.1% | | Top 50 investments | | | | | 418,769 | | 91.6% | | | 51 | (65) | Banca Generali | Diversified Financials | Europe | 4,221 | 1,174 | 0.9% | 0.7% | | 52 | (-) | TCS Group | Banks | Europe | 4,175 | - | 0.9% | - | | 53 | (18) | Hong Kong Exchange | Diversified Financials | Asia (ex-Japan) | 4,081 | 3,148 | 0.9% | 1.9% | | 54 | (-) | Allfunds | Diversified Financials | Europe | 3,938 | - | 0.9% | - | | 55 | (53) | Itaú Unibanco | Banks | Latin America | 3,907 | 1,769 | 0.8% | 1.1% | | 56 | (-) | Bandhan Bank | Banks | Asia (ex-Japan) | 3,446 | - | 0.7% | - | | 57 | (-) | NatWest Group | Banks | United Kingdom | 3,140 | - | 0.7% | - | | 58 | (55) | Ares Capital | Diversified Financials | North America | 2,998 | 1,728 | 0.7% | 1.0% | | 59 | (52) | Solar Capital | Diversified Financials | North America | 2,880 | 1,841 | 0.7% | 1.1% | | 60 | (72) | Finecobank Banca Fineco | Banks | Europe | 2,781 | 726 | 0.6% | 0.4% | | Top 60 investments | | | | | 454,336 | | 99.4% | | | 61 | (45) | VPC Specialty Lending Investments | Fixed Income | Fixed Income | 2,392 | 2,103 | 0.5% | 1.3% | | 62 | (-) | Shinhan Financial | Banks | Asia (ex-Japan) | 2,199 | - | 0.5% | - | | 63 | (64) | Alibaba | Software & Services | Asia (ex-Japan) | 2,065 | 1,371 | 0.4% | 0.8% | | 64 | (-) | Chrysalis Investments | Diversified Financials | United Kingdom | 1,981 | - | 0.4% | - | | 65 | (44) | Atom Bank (unquoted) | Banks | United Kingdom | 1,921 | 2,120 | 0.4% | 1.3% | | 66 | (-) | Gresham House | Diversified Financials | United Kingdom | 1,803 | - | 0.4% | - | | 67 | (-) | One97 Communications | Software & Services | Asia (ex-Japan) | 1,791 | - | 0.4% | - | | 68 | (63) | City of London Investment Group | Diversified Financials | United Kingdom | 1,779 | 1,486 | 0.4% | 0.9% | | 69 | (-) | Schroders | Diversified Financials | United Kingdom | 1,731 | - | 0.4% | - | | 70 | (-) | Provident Financial 8.875% Bond | Fixed Income | Fixed Income | 1,706 | - | 0.4% | - | | Top 70 investments | | | | | 473,704 | | 103.6% | | | 71 | (75) | Stichting AK Rabobank 6.5% Bond | Fixed Income | Fixed Income | 1,676 | 596 | 0.4% | 0.4% | | 72 | (-) | PensionBee | Diversified Financials | United Kingdom | 1,669 | - | 0.4% | - | | 73 | (59) | International Personal Finance 9.75% Bond | Fixed Income | Fixed Income | 1,357 | 1,546 | 0.3% | 0.9% | | 74 | (71) | Riverstone Credit Opportunities | Fixed Income | Fixed Income | 1,325 | 781 | 0.3% | 0.5% | | 75 | (70) | International Personal Finance 7.75% Bond | Fixed Income | Fixed Income | 1,030 | 940 | 0.2% | 0.6% | | 76 | (-) | VEF | Diversified Financials | Europe | 811 | - | 0.1% | - | | 77 | (77) | Jupiter 8.875% Bond | Fixed Income | Fixed Income | 528 | 486 | 0.1% | 0.3% | | Total investments | | | | | 482,100 | | 105.4% | | | Other net liabilities | | | | | (24,853) | | (5.4%) | | | Total net assets | | | | | 457,247 | | 100.0% | | Note: Figures in brackets denote comparative rankings as at 30 November 2020. Annual Report and Financial Statements 2021 • Polar Capital Global Financials Trust plc --- # Portfolio Review As at 30 November 2021 | Geographical Exposure* | Benchmark weighting as at 30 November 2021** | 30 November 2021 | 30 November 2020 | | --- | --- | --- | --- | | North America | 53.5% | 47.6% | 49.3% | | Asia (ex-Japan) | 17.5% | 19.9% | 29.4% | | Europe | 15.5% | 19.2% | 17.3% | | United Kingdom | 4.8% | 11.7% | 8.6% | | Fixed Income | - | 2.2% | 6.6% | | Japan | 3.7% | 2.0% | - | | Latin America | 1.3% | 1.7% | 2.2% | | Eastern Europe | - | 1.1% | - | | Other net liabilities | - | (5.4%) | (13.4%) | | Total | | 100.0% | 100.0% | | Sector Exposure* | Benchmark weighting as at 30 November 2021** | 30 November 2021 | 30 November 2020 | | --- | --- | --- | --- | | Banks | 48.7% | 70.2% | 62.1% | | Diversified Financials | 30.6% | 14.9% | 15.2% | | Insurance | 20.6% | 13.7% | 20.4% | | Software & Services | - | 4.4% | 7.8% | | Fixed Income | - | 2.2% | 6.6% | | Real Estate | - | - | 1.3% | | Other net liabilities | - | (5.4%) | (13.4%) | | Total | | 100.0% | 100.0% | | Market Cap* | Benchmark weighting as at 30 November 2021** | 30 November 2021 | 30 November 2020 | | --- | --- | --- | --- | | Large (>US$5bn) | 99.0% | 85.6% | 97.6% | | Medium (US$0.5bn - US$5bn) | 1.0% | 18.2% | 12.8% | | Small (