Transcript
Speaker: Welcome back to Vantage. In light of the rate environment, we thought it would be great to get someone with financials exposure back on the show. um I am delighted to be joined by Tom Dorner, Fund Manager at Podla Capital Global Financial Trust. Tom, welcome to the show. Thanks for having me. So Tom, to start off with, maybe you can just introduce yourself and what Global Financials Trust is trying to achieve and why investors should consider it as part of their portfolio. Sure. Yeah. So as you said, my name's Tom Dorne. I'm one of the portfolio managers on the Trust. um What the Trust is trying to do is give investors a diversified exposure to global financials It's run by a team of financials experts that have been doing it for a long time. It's very actively managed. It gives you genuinely diversified exposure, for example, not just the best banks in the world, and that's about half of the portfolio. We go well beyond that. give you exposure to insurance companies, asset managers, exchanges and the like. So it's genuinely diversified by sector and it's a really global portfolio as well.
Speaker: It has about 90% of the assets outside of the UK. So we're really pleased with it and we think it's a really differentiated way to get exposure to financials. Okay, great. And and you know, I've touched on at the top of the show the idea of we're in a raising right rate environment. what What are the big macro factors that are impacting the sector at the moment? What are you looking at?
Speaker: Yeah, so so the the the increase in interest rates is is perhaps the most important driver in recent years. the the the Perhaps you might argue that this is a structural change in the operating environment, and if you combine it with the fact that GDP growth globally has been pretty good, it's quite a positive backdrop for financials. We've been saying this to clients for some time, the return generating capacity of the industry is a lot greater with higher interest rates. There are of course other external factors like long-term bond yields are higher or there's geopolitics, but one of the main messages we'd like to leave you guys with is that um the sector's fortunes are much more in its own control than they have been for a long time. It's much less beholden to external factors and that's a function of insurance companies and banks really having got their house in order during the lower interest rate environment after financial crisis. Now they've come out of that into a higher interest rate environment in a much better position.
Speaker: so it's a really really structurally better operating environment than has been for some time. Okay, well well with that in mind, what areas of financials are you favouring, both in terms of geography as well as sector?
Speaker: Sure. So to name a couple, we've been quite bullish on European banks for some time. They've continued to work very well. The sector's getting pretty consistent earnings upgrades. Capital positions are strong. Shareholder returns in terms of dividends and share buybacks are very attractive. And what's happened more recently is that you started to see loan growth, which has been pretty scarce for a number of years. For example, we've been at a European financials conference not far from here about a month ago, meeting a number of the management teams and the message is resolutely positive. So that's an area we still like.
Speaker: Within insurance, we've become a but a bit more selective. The reason for that is that the commercial insurance pricing environment got a bit more challenging. So what we've done is tilt the portfolio towards companies that are beneficiaries of consolidation, which is something that we expect to happen.
Speaker: Maybe the final thing to flag is diversified financials, which is an area of the market where we've been looking for defensive companies with some improving operating trends to help the portfolio be a bit more balanced. There we've been adding to companies like Visa and Mastercard, which got a lot cheaper earlier in the year on some overblown AI concerns, which are not that uncommon. So those are some of the areas that we like. ah It is important to note we have to be nimble. We are very actively managing the portfolio. We're just at the beginning of the third quarter earnings season, which will no doubt provide us with opportunities and surprises. So we remain nimble, but those are some areas that we like at the moment. Okay. and And I think you you started touching on it, but so overlaying that, what are the sort of dominant themes that you're looking at? you know, AI you you touched on yeah emerging markets perhaps. Are there any sort of overriding themes? across Yeah, that sector there are a couple of things that we're paying attention to. So, I mean, if you take a step back, financials as a sector has actually performed very well for a number of years, but we're still quite bullish. The sorts of things that we are bullish about that we think the market under-appreciates are things like M&A activities really increased significantly in the last 18 months, both amongst banks and insurance companies. and That's a way for industry participants to convey that they still see attractive valuations in the sector. That's something that we expect to continue. Another thing that's been going on is that there's been a trend towards deregulation, particularly in the US, yeah but increasingly in the UK and in the rest of Europe. It's not a particularly exciting topic, but it's been a meaningful headwind for the sector in the period after the financial crisis. So the fact that that's turning from headwind to tailwind we think is pretty exciting. and then you referenced AI as well. So there's live debates as to which companies and industries get disrupted. We're firmly of the view, and and this is corroborated by all the management contact that we've had, that many parts of financial services are efficiency gainers from ai investment. so and And that's something that many companies are starting to provide disclosure on to give you a sense of how much they can save in terms of costs going forward from ai so So those are three things that we're very focused on, all of which we think are underappreciated by the market. Yeah, all sound like you know positive tailwinds for the sector. um Okay, so with that, you've given us the backdrop, of your way of picking and some of the themes.
Speaker: Talk us through the performance of the Trust, both shorter term and longer term, and how is it comparing to the broader financial sector as a whole and global equities in general? Yeah, sure. um It's a positive message. We had a good year relative to the benchmark last year.
Speaker: The trust is up almost 10% this year. That's about a percent ahead of the benchmark also. So so so that that's the backdrop. um we're We're pleased with the relative performance. There have been periods of volatility, but generally performance has been strong. Talking a little bit about the performance of financials, over three and five years, financials have quite meaningfully outperformed global equities and we've been doing slightly better than that. So so the that perhaps gets less attention than you might think because of focus on technology and the likes, but actually it's been a pretty good sector to be allocated to and quite diversifying too.
Speaker: Tom, thank you very much for coming on the show. It's been a brilliant run through the the financial sector and I hope to have you on again in the not too distant future. Thank you very much.
