Polar Capital Holdings - Encouraging Q3

Polar Capital Holdings (POLR.L, Market Capitalisation: £459m, 453p, 5.3% of JIC Portfolio, Medium Risk/High Reward = 5.0% target) www.polarcapital.co.uk

Polar Capital is a specialist, investment-led, active fund manager. It says it has a collegiate and meritocratic culture where capacity of investment strategies is managed to enhance and protect performance. Since its foundation in 2001, it has grown steadily and currently has 15 autonomous investment teams managing specialist, active and capacity constrained portfolios, with combined AUM of £18.5 billion (as of 31 December 2022).

Assets under management update as of 31st December

Conclusion: Robust markets in Q4 means that on 31st December, its funds under management were £19.6bn, up from £19.1bn on 30th September. That was despite continued net outflows of £1.1bn in the quarter. Net outflows are not due to poor performance; some investors moved their money elsewhere – perhaps into cash. Eventually, net flows will be positive, but probably not until markets have a more sustained rally! The good news for shareholders is the increase in performance fees in the table below. Any doubts (very small) I had about it paying a maintained 32p final dividend later this year are diminished by today’s numbers. A 32p final will make 46p for the year, giving a dividend yield of 10.2 per cent. I’m up 6.0 per cent so far on my investment, but that has all been due to the dividends received. Tomorrow, I receive the interim dividend amounting to £984 which will increase the return on my investment to 9.0 per cent. At some stage, I will receive dividends and benefit from a capital gain. If the share price increased 44 per cent to my Rising Review Price of 650p, it would still yield 7.0 per cent! My target weight is 5.0 per cent. I’m at 5.3 per cent. I would add if I were below 5.0 per cent and had cash. I remain a very happy holder.

Gavin Rochussen, Chief Executive, commented:

"A strong rally in all major indices in the final calendar quarter of 2023, meant that our AuM at the end of the nine-month period were £19.6bn compared to £19.1bn at the end of the previous quarter and £19.2bn at the end of March 2023, despite net outflows over the period.

"In the quarter we benefited from continued net inflows of £45m into the Emerging Markets and Asian Stars funds and £28m into the Smart Energy Fund.

"Despite global equity markets rallying in the final quarter, the 'risk-off' stance by investors resulted in net outflows in the quarter of £1.1bn as clients reduced their weighting to active equities, taking profits in many cases following a strong period of performance. Net outflows for the nine months amounted to £1.7bn.

"In the quarter several clients continued to reduce their exposure to equities generally, directly impacting several Polar Capital funds including the Biotechnology Fund (£311m) and UK Value Fund (£238m) despite impressive absolute fund performance and strong performance relative to benchmark. Investors also continued to reduce weightings in our Technology funds and the European Opportunities Fund with net outflows of £136m and £230m in these strategies respectively. Overall, redemptions were concentrated in terms of number of clients, as opposed to representative of a wider trend.

"With peak interest rates in sight and declining inflation rates, investors will, we believe, begin to seek additional exposure to equities. We have a strong pipeline of client interest and have capacity to meet investor demand for our specialist active fund strategies. At the end of the quarter, we launched a Financial Credit Fund, managed by our Financials team, to further add to our offering.

"Performance fee profits, net of staff allocations, amounted to £9.6m compared to £1.7m in the prior year. While four funds earned a performance fee, most of the amount related to one fund.

"Long term performance remains strong with 81% of AuM outperforming respective benchmarks since inception.

"We remain confident that with our diverse range of differentiated, active specialist fund strategies we are well-positioned to perform for our clients and shareholders over the long term."