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Polar Capital Technology Trust: September 2021 update

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

  • The trust is backed by a well-resourced team with plenty of experience in the technology sector
  • The managers invest to benefit from some of the biggest technology trends but currently remain cautious around valuations
  • Their focus on high-quality companies benefiting from powerful growth themes has delivered impressive long-term results, although past performance is not a guide to the future

How it fits in a portfolio

Polar Capital Technology Trust could be an option to increase a broader investment portfolio’s exposure to technology. It aims to grow your money over time by investing in next generation technology leaders, with great long-term potential. Investing in a single sector is a higher-risk approach than a more diversified one though, so it should only form a small part of a well-diversified portfolio, invested for the long term.

When investing in closed-ended funds you should be aware the trust can trade at a discount or premium to net asset value (NAV).

Manager

Lead manager Ben Rogoff and co-manager 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. They are also 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.

The managers also have the backing of three other fund managers and a team of analysts. Rogoff and Evans sit down with each analyst once a month to discuss their ideas and hold weekly team meetings to examine market trends, portfolio positioning and investment ideas.

Process

The managers avoid early-stage or blue-sky companies and instead focus on high-quality companies in strong financial positions with experienced management teams. While this includes some higher-risk small and medium-sized companies, roughly 91% of the trust is invested in larger technology firms, including Alphabet and Apple.

Each company must also hold the potential to benefit from a technology trend or growth theme. Examples include the push for digital transformation and increased demand for online and internet-based services.

Communications platform Twitter Inc was recently added to the trust. As lockdown measures ease and the economy begins to open, its advertising business could benefit. Software company Square Inc was added to the portfolio too, as its payment platform was in demand during the early stages of the pandemic. The managers also like its Point of Sale system which provides an all-in-one solution for running a business as well as being able to take customer payments securely. The managers believe this has the potential to flourish as we begin to return to the ‘new normal’.

In contrast, the managers reduced their investment in Amazon as it’s lost some of its market dominance. The pandemic forced companies to adapt and improve their online presence, so Amazon is now facing higher levels of competition.

Tencent and Alibaba provided some strong returns for the trust historically but face increased regulatory risk in China. The managers therefore reduced their investments in both. Investing in emerging markets can help boost returns, but also increases risk.

Investors should be aware that the managers have the flexibility to use gearing (borrowing to invest) and derivatives which can magnify any gains or losses and increases 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.

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. While their investment process is not driven by ESG factors, the managers engage with companies they invest in to help improve their corporate behaviour and exclude those they feel are the worst offenders.

Cost

The trust’s charging structure is tiered, meaning the bigger the trust gets, the less investors pay. It grew in size over the last financial year. This meant that for the year to 30 April 2021, the ongoing annual charge was reduced to 0.82%, compared to 0.93% the previous year. Investors should note the trust also has a performance fee, though this was not levied over the past year. Investors should refer to the latest annual reports and accounts and Key Information Document 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

The trust’s long-term performance has been strong and since Rogoff took over in 2006 it’s returned 1,110.7% *. But remember, past performance is not a guide to future returns.

The trust didn’t do as well over the past year though. It tends to invest in companies capable of above-average earnings growth, an investment style known as ‘growth’ investing. This style fell out of favour for much of the past year as investors preferred companies that had previously gone overlooked and undervalued, also known as ‘value’ stocks.

Technology companies are notoriously growth focused so were particularly impacted by this rotation. Software was one of the most impacted sectors, with poorer performances from Zoom and Salesforce.com compared to the previous year. An investment in software company Everbridge also detracted from performance.

It wasn’t all bad news though. Cloud software and security companies Cloudflare and Crowdstrike saw huge increases in demand for their services and their share prices rose strongly. Twilio, a platform that supports remote working, also did well.

Some of the trust’s alternative energy companies performed well too. An increase in demand for electric vehicles and growing list of countries committing to carbon neutrality targets meant manufacturing company BYD and renewable energy provider Ceres Power were amongst the top performers.

Annual percentage growth
Aug 16 -
Aug 17
Aug 17 -
Aug 18
Aug 18 -
Aug 19
Aug 19 -
Aug 20
Aug 20 -
Aug 21
Polar Capital Technology Trust 44.5% 30.4% 1.3% 55.8% 17.7%

Past performance isn't a guide to the future. Source: *Lipper IM to 31/08/2021.

Find out more about Polar Capital Technology Trust including charges

View Polar Capital Technology Trust Key Information Document


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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