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Polar Capital Technology Trust: September 2020 update

Investment Analyst Josef Licsauer shares our analysis on the manager, process, culture, cost and performance of Polar Capital Technology Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • This trust invests in next generation technology leaders with plenty of growth potential
  • The managers' focus on high-quality companies benefiting from powerful growth themes has delivered impressive long-term results
  • The trust could provide access to some of the world's most promising technology companies

How it fits into a portfolio

Polar Capital Technology Trust aims to deliver long-term capital growth by investing in a portfolio of profitable, next generation technology leaders with above average growth potential. The trust invests mainly in higher-risk small and medium-sized companies but has the flexibility to invest in companies of any size.

The trust could help boost long-term growth potential. However, we think funds and investment trusts investing in specialist areas, such as a specific sector, should usually only form a small part of a well-diversified investment portfolio. The managers can also invest in emerging markets in order to help boost returns but this will increase risk. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to NAV.

Manager

Ben Rogoff and Nick Evans have a combined 46 years experience as technology specialists and have been managers of Polar Capital Technology Trust since 2006 and 2008, respectively.

Lead manager Rogoff started his career as a global technology analyst at CMI and later moved to Aberdeen Fund Managers where he worked as a senior technology manager. He joined Polar Capital in 2003 and became lead manager of this trust in 2006.

Prior to joining Polar Capital in 2007, co-manager Evans was the head of technology at AXA Framlington and the lead manager of their Global Technology fund.

In addition to the Polar Capital Technology Trust, Rogoff and Evans are lead managers of the open-ended Polar Capital Global Technology and Polar Capital Automation and Artificial Intelligence Funds. We think they work well as a team and can comfortably manage their commitment to both the investment trust and funds under coverage.

Both have plenty of experience in the technology sector and can call upon the support of a team of analysts and other fund managers for ideas, challenge or analysis. Rogoff and Evans like to sit down individually with each analyst once a month to discuss their ideas in further detail and hold weekly team meetings to examine markets, portfolio positioning and investment ideas.

Process

The managers avoid early-stage or blue-sky companies, focusing on high-quality companies in a strong financial position and with experienced management teams. The company must also have the potential to benefit from a growth theme, such as media content, digital advertising or artificial intelligence.

The portfolio is made up mainly of small and medium-sized companies with excellent growth potential, but also contains some larger household names. Software giant Microsoft, Google’s parent company Alphabet and graphics processor developer Advanced Micro Devices are all examples. Currently the trust invests heavily in software, semiconductors and interactive media & services as the managers tend to find plenty of opportunities in these areas.

An investment in Intel Corporation was recently sold from the portfolio following news that the company expected to delay the launch of a new computer processer because its development is behind schedule. The managers used the proceeds to top up their investment in Intel competitor Taiwan Semiconductor Manufacturing Company (TSMC).

The team has also increased their investments in interactive media businesses Netflix, Spotify and Alphabet (which owns YouTube). Use of these services exploded in recent months as people across the globe found themselves confined to their homes amid coronavirus lockdowns.

The managers have the flexibility to use gearing, which means borrowing money to invest. It could help boost returns when prices rise, but the reverse is also true so it increases risk. Derivatives can also be used which will increase risk .

Culture

Polar Capital promotes a strong focus on shareholders' interests and ensures they align with those of fund managers. The managers see themselves as part owners of the trust as they may receive a bonus that can be deferred into shares of the trust over 3 years. This helps make sure the trust is run in a way that benefits all shareholders.

The team has been relatively stable in recent years, which we view positively. Only one analyst has left the team in the past five years. Chris Wittstock joined the team in July 2017 to cover this gap. The team also made two new hires in June 2019.

Environmental, social and governance (ESG) issues have become increasingly prominent in recent years, and the Polar Capital team feel that technology companies have the potential to help alleviate these problems in the years to come. The managers have recently placed increased emphasis on ESG within the companies they invest and, while their investment process is not driven by ESG factors, the managers aim to improve the behaviour of the companies they invest in and avoid the worst offenders.

Cost

The ongoing annual charge over the trust's financial year to 30 April 2020 was 0.99%, including a performance fee of 0.06%. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 per annum for a SIPP and £45 per annum for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share Account.

Performance

Since lead manager Rogoff took over Polar Capital Technology Trust in 2006 the performance has been strong, returning 795.3% * versus the FTSE Word Technology index’s 739.4% gain. Past performance is not a guide to future returns.

Despite the impact of coronavirus and the volatility it has created, the trust has delivered an attractive return of 55.8% over the past year. One of the trust's best-performing investments over the year was Advanced Micro Devices. The company responded quickly to an increased demand for electronic goods as a result of the lockdown.

Companies that allow employees to work from home also performed well, notably RingCentral and Everbridge. Both companies provide software solutions, such as communication tools and video facilities, allowing employees to work from home effectively.

Not all of the trust's investments escaped the impact of coronavirus though.

Software company Arista Networks and taxi hailing business Uber Technologies were some of the trusts weaker performers over the past year. Arista Networks reported disappointing earnings while Uber Technologies was hit by lower passenger numbers as a result of lockdown restrictions and social distancing measures.

Polar Capital Technology performance under Ben Rogoff and Nick Evans

Past performance isn't a guide to the future. *Source: Lipper IM to 31/08/2020.

Annual percentage growth
Aug 15 -
Aug 16
Aug 16 -
Aug 17
Aug 17 -
Aug 18
Aug 18 -
Aug 19
Aug 19 -
Aug 20
Polar Capital Technology Trust 29.6% 44.5% 30.4% 1.3% 55.8%
FTSE World/Technology 39.0% 32.2% 28.0% 9.0% 44.5%

Past performance isn't a guide to the future. Source: Lipper IM to 31/08/2020.

Find out more about Polar Capital Technology Trust including charges

Polar Capital Technology Trust Key Investor Information


Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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