Invest in economically resilient companies via Polar Capital Global Insurance

"Insurance companies have a fantastic ability to generate cash regardless of the economic environment, as we all know through our ever-increasing insurance premiums,” says Ryan Hughes, head of active portfolios at broker AJ Bell. “And Polar Capital Global Insurance Fund has a relatively low correlation with global equities so adds useful diversification to a portfolio of traditional equities. [Its managers] are experts in this specialist field and this comes through in the quality of managements.”

The fund has succeeded in its aim of an attractive total return irrespective of broader economic and financial market conditions. It has delivered double-digit total returns over three and five years that are well ahead of its benchmark, MSCI World Insurance index, and the broader MSCI AC World index.

The fund has a relatively defensive profile and over one year has returned 1.33 per cent, in contrast to falls for both of these indices. This could be useful if there is considerable market volatility in the near future, as some analysts anticipate.

Polar Capital Global Insurance’s management team of eight is experienced in risk and casualty insurance, and led by Nick Martin, a qualified chartered accountant. They invest in 30 to 35 underwriting specialists that offer a level of diversification, which they say is important when investing in this sector. They move around the fund’s allocation to particular classes of business as premium rates, terms and conditions, and loss activity change. They tend to invest in companies with more focused underwriting strategies, and of which the managements hold a meaningful stake so are incentivised to grow book value per share and dividends.

The team does all its own analysis and research, and places great importance on meeting and assessing the integrity of company managements because insurance is a promise to pay.

The fund also has less than 10 per cent of its assets in UK-listed companies making it a good diversifier if you already have substantial exposure to the home market. It is still not clear how the UK will leave the European Union and there could be considerable UK market volatility ahead, so having exposure to overseas assets could be helpful.

Polar Capital Global Insurance’s fortunes rely on one area, so if there is a problem affecting insurance companies many of its investments could be detrimentally affected. And as over three-quarters of its assets are listed in the US it is subject to currency fluctuations, which can be beneficial or detrimental depending on the strength of Sterling against the dollar.

The fund’s E and F shares, which are offered by platforms such as Hargreaves Lansdown, have a reasonable ongoing charge of 0.87 per cent. But some platforms don’t offer these – instead they offer ones that also have a performance fee of 10 per cent a year of any returns the fund achieves above MSCI World Insurance Index. This wasn’t levied in 2017, but when it is the ongoing charge is likely to increase.

However, the fund’s performance has been strong and compensated investors well for their charges – especially in share classes without performance fees.

Although the fund invests in one industry, there are several insurance sub-sectors and it is well diversified across these. And despite being a specialist fund, its volatility has been relatively low.

So if you have a large portfolio and a high enough risk appetite to invest in a single-sector fund, Polar Capital Global Insurance looks like a good way to get exposure to companies that can generate cash regardless of the economic environment, with less volatility than broader markets. Buy.

Polar Capital Global Insurance Fund (IE00B61MW553)

Source: Morningstar, * Polar Capital, ** Hargreaves Lansdown

Performance

Source: FE Analytics as at 18 December 2018

Top 10 holdings as at 30 November 2018 (%)

Source: Polar Capital

Sector breakdown as at 30 November 2018 (%)

Source: Polar Capital