Polar Capital: A cheap, leveraged play on technology

Final 12 months was a horrible 12 months for the lively fund administration business. Buyers have been constantly pulling cash out of lively funding funds for the previous decade, however outflows accelerated in 2025. Greater than $1 trillion flowed out of lively U.S. mutual funds final 12 months, up from about $600 billion in 2024, in keeping with knowledge compiled by Bloomberg Intelligence. Buyers have turned to passive exchange-traded funds (ETFs), including greater than $600 billion final 12 months. Within the UK, the pattern is analogous, albeit in smaller numbers.

Whereas this may increasingly appear to recommend that the top is close to for the UK listed fund administration sector, that isn’t solely the case. Based mostly on accessible figures, solely two publicly traded managers are on observe to report a decline in property underneath administration (AUM), in keeping with Peel Hunt evaluation. These managers are Liontrust and Impax Asset Administration, which misplaced two key powers from St James’s Place. This can cut back the group’s annual property underneath administration by as much as 23.3%.

Polar Capital (Goal: POLR) has been an impressive performer. On the finish of September, the group had property underneath administration of £26.7bn, up from £23.2bn on the finish of June. Internet outflows for the quarter have been simply £58m in comparison with £632m within the earlier quarter. The corporate’s success will be attributed to its place as a specialised supervisor targeted on duties in a couple of key sectors. As of the top of September, the corporate’s open-end funds accounted for 75% of its property, with mutual funds accounting for 23% and the rest in separate mandates. Know-how and healthcare methods accounted for 51% and 14% of property underneath administration, respectively. This implies the corporate is overly uncovered to those sectors as an operator, however has been on the appropriate aspect of the fence for the previous decade.

Polar Capital’s deep roots in know-how

It is exhausting to argue that know-how and healthcare will not proceed to draw investor curiosity over the subsequent decade. Though these sectors might encounter disruptions alongside the way in which, know-how and healthcare will proceed to be two of probably the most thrilling and promising thematic tendencies. Below the administration of its new CEO, Polar plans to double the market that has helped it turn into one of many UK’s prime boutique fund managers.

The group’s roots are in know-how. It was based by Brian Ashford-Russell and Tim Woolley, who left their jobs at Henderson Know-how Belief, managed by Henderson Buyers, to arrange the brand new boutique in 2001. Backed by Caledonia Investments, the self-managed mutual fund Polar grew quickly regardless of the dot-com bubble, reaching $2 billion in property underneath administration by 2005. Based in 1996, Henderson Know-how Belief grew to become Polar Capital Know-how. Trusts are the core of the Group’s fund vary. Since its inception, Know-how Belief has delivered annualized returns of 14.7% (by April 30, 2025) by exactly timing key turning factors within the know-how business, together with the rise of massive knowledge in 2010 and AI in 2017.

The agency’s flagship open-ended know-how fund, the International Know-how Fund, was created on the time of Polar’s founding. Now, each are managed by the identical staff, however they’re much greater than the belief. The principle distinction is focus. The belief has 91 positions in comparison with 65 positions within the open-end car. Nevertheless, trusts are extra concentrated, with 53% of their portfolios of their prime 10 holdings, in comparison with 47% for open-end funds.

Ian Evans is a promising new boss

In September, Ian Evans was appointed CEO after 21 years on the firm. Mr. Evans plans to do what has labored nicely at Polar: construct on experience in a number of key areas by selective acquisitions. This want to concentrate on what works is refreshing in a sector that appears to be struggling to seek out course. Many managers panic over the rise of passive funds, usually losing cash on bolt-on acquisitions in hopes of reaching development or increasing into new markets.

Polar does the alternative. That will go away the corporate on the mercy of its know-how’s efficiency, however it stands out in an space the place it is struggling. Nevertheless, the market doesn’t think about its benefits. In actual fact, buyers are lumping Polar in with struggling managers resembling Liontrust and Impax as a result of its valuation ranks close to the underside of its peer group of fund managers.

On the time of writing, Polar Capital inventory trades at a ahead worth/earnings (p/e) of 10x in keeping with Panmure Liberum and 9x in keeping with Peel Hunt. That is considerably cheaper than the typical of 16 folks within the fund supervisor sector (together with wealth managers). Fund managers’ returns are extra cyclical than wealth administration’s extra steady returns, so the inventory deserves a reduction to the sector common, however a distinction of greater than 43% seems extreme. Panmure Liberum believes 20% is extra acceptable.

There are additionally firm dividends. Polar makes cash by each common cash administration and efficiency charges. On an asset base of £23.2bn, Polar Capital recorded administration charges of £86.8m within the first six months of the 2025 monetary 12 months. For the 12 months ended March 2025, we recorded a administration payment yield of 78 foundation factors (0.78%) and web administration charges of £178.3m. Additionally, his annual look payment was £16m, a rise of thousands and thousands of kilos in comparison with 2024. Mr Panmure estimates that this might attain £28m by 2026. Common administration charges already cowl Polar’s dividend, however the extra efficiency payment makes the corporate’s 8.7% yield greater than lined by earnings per share, and will keep that manner for a while.

Total, Polar gives an inexpensive and leveraged solution to meet international demand for tech shares, whereas additionally providing a market-beating dividend yield.

This text first appeared in MoneyWeek journal. With a MoneyWeek subscription, you get pleasure from unique early entry to information, opinion and evaluation from our staff of economic consultants.