Polar Capital European ex-UK Income: February 2026 fund update

• Nick Davis has a long track record in European income investing and believes the power of compounding dividends is key to long-term success

• This fund focuses on investing in undervalued companies that have the potential to deliver attractive returns and grow their dividends

• Since launch in 2015, the fund has paid an attractive income to investors. Though yields and income change over time and aren't guaranteed

• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Polar Capital European ex-UK Income fund aims to pay an income greater than its benchmark, the MSCI Europe ex-UK index. It also aims to grow investors' money over the long term, but with less ups and downs (volatility) compared with its benchmark and peers.

The fund invests in larger European companies that are undervalued. These are companies that might be out of favour or where the manager doesn’t feel the share price matches the company’s longer-term potential but has the potential to bounce back. Overall, the manager takes a more conservative approach, which means the fund could provide greater stability than others during tougher times.

This makes the fund different from other European funds that focus on companies with high-growth expectations. The fund could be a good addition to an investment portfolio focused on income or provide some diversification to other European or global funds focused on growth.

Manager

Nick Davis, the fund’s lead manager, has 18 years' experience in the investment industry and is a contrarian at heart, which is reflected in the way he manages the fund. He began his fund management career in January 2011 at Columbia Threadneedle (CT) where he managed the Pan European Equity Dividend fund and was deputy manager of the European Select fund.

Davis joined Polar Capital in September 2014 and has managed the European ex-UK Income fund since it launched in June 2015. He’s managed other European funds over this time, but his sole focus is currently this fund.

Davis is supported by deputy manager Dan Tse who joined Polar Capital in June 2013. Tse has a technical background and is quantitatively focused, a skillset he uses to support Davis in managing the fund.

Raniyah Qureshi, a previous analyst on the fund, left Polar Capital in August 2025 to explore opportunities outside the fund management industry. We’re comfortable Davis and Tse can handle the responsibilities of managing the fund between them and having a relatively small team is in line with how other funds are managed at Polar Capital.

Davis also makes use of the wider resources at Polar Capital, including their ESG (Environmental, Social and Governance) team. That said, our conviction in this fund primarily lies with him.

Process

The fund aims to pay an income at least 10% higher than that of the MSCI Europe ex-UK index, alongside some capital growth over the long term. Davis looks for undervalued European companies that pay an income and have potential to improve over time. This investment style is known as value investing, though he also focuses on companies that could provide some stability during tougher times.

The manager focuses on companies he believes can achieve at least a 10% annual total shareholder return, which includes dividend and earnings growth potential, over the medium term. Davis believes other investors underestimate the long-term potential of these companies.

The manager invests in companies that yield (a measure of income) at least 2.5% with the potential to be able to grow their dividends over time. He focuses on balance sheet strength and the competitive landscape. To help limit volatility he considers how cash generative a business is, and how resilient they could be in a market downturn.

The fund invests in around 25-50 companies, currently 33. Investing in a relatively small number of companies means each investment could have a big impact on performance, which increases risk. The managers also have the flexibility to use derivatives which can magnify any gains or losses and increases risk.

Recent additions to the fund include Wolters Kluwer, a software solutions provider, and Veolia, which offers water, energy and waste recycling solutions.

On the other hand, several insurance companies were sold, some of which were sold following a period of good performance. This includes Zurich Insurance Group, Munich Re and Swiss Re. Hannover Re was recently added to the fund as Davis now views it as a higher-quality option in the insurance sector.

Culture

Polar Capital was founded in 2001 and prides itself on its collegiate investment culture. Each investment team has autonomy, which allows them to develop and apply their own investment process and philosophy, but with sufficient challenge and oversight.

The culture within the European team is strong and debate is encouraged. While Davis is the ultimate decision maker, he's supportive of the team challenging investment decisions to add rigour to the process. He also has meaningful ongoing interactions with the group’s Investment Risk team and CIO (Chief Investment Officer) – while we’re pleased Davis has stayed true to his overriding process, we view it positively he’s prepared to make enhancements to improve performance over time.

The firm has a strong focus on shareholders' interests and ensures that fund managers are aligned accordingly and appropriately incentivised.

ESG integration

Each investment team at Polar Capital has autonomy over its own investment strategy. This means they all take slightly different approaches to ESG (Environmental, Social and Governance) integration, and some are more advanced than others. That said, the firm makes third party ESG data and research available for all fund managers and all Polar Capital funds exclude companies involved in the production or marketing of controversial weapons.

Alexander Macdonald, Head of Sustainability, coordinates the firm’s sustainability-related initiatives and helps the investment teams frame their thinking around ESG and incorporate ESG analysis in a robust way. His aim is to further develop Polar Capital’s funds’ integration of ESG factors as well as enhancing their responsible investment and stewardship capabilities.

Polar Capital fund managers engage with the companies they invest in where they feel it will have a positive impact on company performance and enhance shareholder value. Fund managers are also responsible for voting, but their views are informed by third party proxy voting specialist Institutional Shareholder Services. A summary voting record is provided annually, but the full voting record is not provided. Overall, Polar Capital is less transparent on its ESG-related activities than some peers.

As at the end of December 2025 this fund invests 17.80% in companies involved with the extraction of oil, gas or coal. This could leave the fund vulnerable to fluctuations in commodity prices, regulatory changes aimed at reducing carbon emissions, and potential shifts in consumer preferences towards sustainable alternatives.

Cost

This fund is available at an annual ongoing fund charge of 0.73%. This makes it one of the lowest-cost actively managed funds in the European sector available through HL. The HL platform fee of up to 0.45% per year also applies, apart from in the Junior ISA where there is no platform fee. From March 2026, the amount clients pay to invest with us will change. Find out more about these changes.

Please note the fund's charges are taken from capital rather than income. This increases the yield but reduces the potential for capital growth.

Performance

Since the fund launched in June 2015, it's delivered returns of 123.94%* compared with 147.48% for the average fund in the IA Europe ex UK sector. As always past performance isn’t a guide to future returns.

While the fund has underperformed peers over this time, this isn’t its only aim. It also aims to be less volatile than the peer group and broader European market, as well as pay an attractive income. This is something it’s achieved, and the fund’s performance has also been much smoother. Over the longer term, the fund has tended to lag a rising market but hold up better when markets are falling.

As an example of how the fund performs in different market conditions, it went through a more difficult period in 2019 and 2020. Growth-focused companies that Davis tends not to invest in, including those in the technology sector, did well which was a headwind. In 2022, the value style of investing returned to favour, and this helped performance. It also held up well during the ‘Liberation Day’ market selloff in April 2025.

More recently, over the past year, the fund has grown 12.77% compared with the IA Europe ex UK sector average return of 15.87%. Sectors including banks, aerospace and defence, and mining have been some of Europe’s strongest performers over this time. But Davis tends not to invest as much in these sectors as they don’t tend to meet the quality threshold needed to make it into the fund.

This is broadly how we’d expect the fund to perform in this environment – it’s still provided a good return, but not kept pace with a rapidly rising market, particularly in more economically sensitive parts of the market. We expect it to perform better when more defensive businesses do well or the broader market stumbles.

The fund has continued to pay an attractive income to investors, as it has done over the long run. It currently yields 3.99%, although income is not guaranteed, and yields aren't a reliable indicator of future income.