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Polar Capital - AuM ticks up in 4th quarter but outflows continue

Polar Capital saw its Assets under Management rise 4% to £19.2bn in the final quarter of its financial year.

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Polar Capital saw its Assets under Management (AuM) rise 4% to £19.2bn in the final quarter of its financial year. However, net outflows continued, amounting to £410m, driven largely by profit-taking in the Global Insurance Fund.

There were some bright spots for inflows, with Polar highlighting £320m of client money coming into a selection of funds.

Despite the quarter-on-quarter improvement, AuM was down 13% from last year, with adverse market performance adding to the declines from net outflows and fund closures.

The shares were up 3.0% in late morning trading.

View the latest Polar Capital share price and how to deal

Our view

Polar Capital's funds under management, from which it derives its management fees, rebounded slightly in early 2023. But given its investment focus, that's not too much of a surprise, with technology stocks recovering year to date. The Group has particular expertise in Technology and Healthcare, which at the half-year point accounted for 37% and 20% of assets under management, respectively.

While investment performance can help boost the bottom line, the continuing net outflows remain a worry. Investment performance can wax and wane, but retaining and attracting new money will drive the business's long-term health. It's not all bad news, with some strategies gaining momentum and technology investment outflows declining. It remains to be seen if and when Polar can drive enough institutional investors in its direction to return to net inflows.

Despite the challenges noted, Polar Capital has remained profitable and cash positive at an operational level. The Group isn't standing still and has been diversifying into sustainability focused funds, which have been both outperforming their benchmarks and attracting inflows. However, at £1.1bn it's still a small part of AuM.

The Group claims "at some point, as inflation stabilises and interest rates peak, investors will require increased market exposure". Polar also feels "well placed to benefit from this demand." We do think that Polar has a unique offering. However, given the pressure investors are currently feeling, it may be more mainstream asset managers that benefit, rather than specialist managers like Polar. There is also a risk that sentiment for growth stocks deteriorates, given the increasing likelihood of recession in major economies.

The Group's prospective dividend yield of 10% is of note. However, market forecasts suggest cash flows don't cover the dividend. If earnings don't recover, the risk that the dividend is cut or scrapped increases. As ever, dividends are by no means guaranteed.

Despite the continued pressure on demand for Polar's funds, the price earnings ratio remains close to the long-term average. If AuM remains under pressure, then there is little reason for investor sentiment to improve.

Polar Capital key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 13th April 2023