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2. Source: Lipper. As at market close.
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The modern world is built on technology – an ever-advancing megatrend transforming our lives today and shaping our future. Polar Capital Technology Trust plc provides investors access to this enormous, fast-evolving potential.
As one of the largest, most experienced technology investment trusts in Europe, we have deep experience in identifying trends early. With major innovations emerging, disrupting industries and companies across the world, we are well-placed to exploit these opportunities.
Past performance is not a reliable indicator of future returns.
While the pandemic has been an accelerant for technology disruption, digital transformation is far from complete. Multi-decade trends like Artificial Intelligence, cloud infrastructure and the data economy are still in their infancy and as tech investors, we are embracing the opportunities arising from these disruptive innovations.
Over the last ten years, technology has become a pervasive force in our everyday lives, and the pandemic only served to accelerate this further.
We believe that technology will remain integral as we face a post-pandemic, hybrid world and that the sector will continue to be a primary driver of growth as it takes ever more share of global GDP. PCT seeks to benefit from this by investing across several core, multi-decade technology themes:
Our approach aims to cut through the hype which often can be found within the technology sector, and lead to unjustified valuations and elevated levels of risk. We have a highly disciplined, conservative approach that – in a high growth sector – differentiates the portfolio from its peers.
We look for technology companies playing on structural, secular trends and that offer genuine long-term growth potential. These technology companies will be the primary beneficiaries as the sector continues to capture an ever-higher proportion of global GDP, disrupt industries, and transform business models.
Managed by an expert team of dedicated technology specialists, PCT has an impressive long-term track record, built on the managers ability to identify emerging technology trends and invest with conviction in those companies best placed to exploit them.
Cumulative performance (%) | 1 year | 3 years | 5 years | 10 years |
---|---|---|---|---|
Ordinary Share Price (TR) | 16.74 | 7.75 | 67.29 | 400.56 |
NAV per Share (TR) | 20.19 | 16.96 | 86.88 | 475.37 |
Benchmark | 28.21 | 34.84 | 110.18 | 516.49 |
Discrete performance (%) | 30.09.22 29.09.23 | 30.09.21 30.09.22 | 30.09.20 30.09.21 | 30.09.19 30.09.20 | 28.09.18 30.09.19 |
---|---|---|---|---|---|
Ordinary Share Price (TR) | 16.74 | -21.17 | 17.09 | 47.08 | 5.56 |
NAV per Share (TR) | 20.19 | -19.78 | 21.31 | 46.14 | 9.33 |
Benchmark | 28.21 | -15.63 | 24.66 | 40.73 | 10.76 |
Data as at 29 September 2023.
Past performance is not indicative or a guarantee of future results. Source: Bloomberg & HSBC Securities Services (UK) Limited, percentage growth, Net of Fees in GBP terms. Benchmark index used is the Dow Jones Global Technology Index (Total Return). More information on performance can be found in the Share Price & Performance tab.
Data as at 31 October 2023
Source: Bloomberg & HSBC Securities Services (UK) Limited, percentage growth, Net of Fees in GBP terms. Past performance is not indicative or a guarantee of future results. Benchmark index used is the Dow Jones Global Technology Index (Total Return). More information on performance can be found in the Share Price & Performance tab.
Important Information: This website is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price.
It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document,the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this website is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.
Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Benchmarks: The following benchmark index is used: Dow Jones Global Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Fund was similar to the indices in composition or risk. The benchmark used to calculate the performance fee is provided by an administrator on the ESMA register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.
Performance/Investment Process/Risk: Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Factors affecting the Company’s performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Company’s investment policy allows for it to enter into derivatives contracts. Leverage may be generated through the use of such financial instruments and investors must be aware that the use of derivatives may expose the Company to greater risks, including, but not limited to, unanticipated market developments and risks of illiquidity, and is not suitable for all investors. Those in possession of this document must read the Company’s Investment Policy and Annual Report for further information on the use of derivatives. Past performance is not a guide to or indicative of future results. Future returns or income are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), or guaranteed by any bank, and may lose value. No investment process or strategy is free of risk and there is no guarantee that the investment process or strategy described herein will be profitable.
Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
Last updated {{time}} {{Date}}
2. Source: Lipper. As at market close.
The global pandemic has shown the modern world is built on technology. Trends we have witnessed and written about for many years have accelerated during the crisis, and many will remain as the crisis recedes. Polar Capital Technology Trust plc provides investors access to this enormous, fast-evolving potential.
Managed by a team of dedicated technology specialists, PCT is a leading investment trust with a multi-year track record – a result of the managers’ active approach and their ability to not only identify developing technology trends early on but to invest with conviction in those companies best placed to exploit them.
Past performance is not a reliable indicator of future returns.
The Company aims to maximise long-term capital growth through investing in a diversified portfolio of technology companies around the world.
At the Annual General Meeting in 2012 shareholder approval was obtained for a simplified investment policy. This did not change the investment objective but provides a clear and appropriate set of up to date investment restrictions in line with the Financial Conduct Authority and HM Revenue and Customs current requirements. The portfolio was managed under and in accordance with the old policy and restrictions in the year to 30 April 2012 and up to 4 September 2012 when the change was approved by shareholders.
Asset allocation
Technology may be defined as the application of scientific knowledge for practical purposes and technology companies are defined accordingly. While this offers a very broad and dynamic investing universe and covers many different companies, the portfolio of the Company (the “Portfolio”) is focused on companies which use technology or which develop and supply technological solutions as a core part of their business models. This includes areas as diverse as information, media, communications, environmental, healthcare, finance, e-commerce and renewable energy, as well as the more obvious applications such as computing and associated industries.
The Board has agreed a set of parameters which seek to ensure that investment risk is spread and diversified. The Board believes that this provides the necessary flexibility for the Investment Manager to pursue the investment objective, given the dynamic and rapid changes in the field of technology, while maintaining a spread of investments.
The Company uses the Dow Jones Global Technology Index (total return, Sterling adjusted, with the removal of relevant withholding taxes) as the Benchmark against which Net Asset Value (NAV) performance is measured for the purpose of assessing performance fees. From 1 May 2013 the benchmark was calculated using a net basis which adjusts the Benchmark income element to reflect withholding taxes which would be suffered by a UK based investor.
However, the Benchmark is neither a target nor an ideal investment strategy. The purpose of the Benchmark is to set a reasonable return for shareholders of PCT above which the Investment Manager is entitled to a share of the extra performance it has delivered.
Risk diversification
PCT will at all times invest and manage its assets in a manner that is consistent with spreading investment risk and invests in a Portfolio comprised primarily of international quoted equities which is diversified across both regions and sectors. PCT will satisfy the following investment restrictions:
In addition to the restrictions set out above, PCT is subject to Chapter 15 of the UK Listing Authority’s Listing Rules which apply to closed-ended investment companies with a premium listing on the Official List of the London Stock Exchange. In order to comply with the current Listing Rules, PCT will not invest more than 10 per cent. of its total assets at the time of acquisition in other listed closed-ended investment funds, whether managed by the Investment Manager or not. This restriction does not apply to investments in closed-ended investment funds which themselves have published investment policies to invest no more than 15 per cent. of their total assets in other listed closed-ended investment funds. However, PCT will not in any case invest more than 15 per cent. of its total assets in other closed-ended investment funds. PCT must not conduct any trading activity which is significant in the context of its group as a whole.
Borrowing, Cash and Derivatives
The Company may borrow money to invest in the Portfolio over both the long and short-term. Any commitment to borrow funds is agreed by the Board and the AIFM.
The Company’s Articles of Association permit borrowings up to the amount of its paid up share capital plus capital and revenue reserves but any net borrowings in excess of 20% of the Company’s net assets at the time of drawdown will only be made with the approval of the Board.
The Investment Manager may also use from time to time derivative instruments as approved by the Board such as financial futures, options, contracts-for-difference and currency hedges. These are used for the purpose of efficient portfolio management. Any such use of derivatives will be made in accordance with PCT’s policies on spreading investment risk as set out in this investment policy and any leverage resulting from the use of such derivatives will be subject to the restrictions on borrowings set out above.
Changes to investment policy
Any material change to the investment policy will require the approval of the Shareholders by way of an ordinary resolution at a general meeting. PCT will promptly issue an announcement to inform Shareholders and the public of any change of its investment policy.
The Board monitors the portfolio’s exposure to different geographical markets, sub-sectors within technology and the spread of investments across different market capitalisations. Cyclical changes in markets and new technologies will bring certain sub-sectors or companies of a particular size or market capitalisation into or out of favour.
Market parameters
Notwithstanding the ability to invest up to 100% of the portfolio in any one market, with current and foreseeable investment conditions the Portfolio will be invested in accordance with the objective across worldwide markets within the following geographical and market parameters:
The Board has set specific upper exposure limits for certain countries where they believe there may be an elevated risk.
Cash
From time to time PCT may hold cash or near cash equivalents if the Investment Manager feels that these will at a particular time or over a period enhance the performance of the Portfolio. The management of cash is through the purchase of appropriate government bonds, money market funds or bank deposits depending on the Investment Manager’s view of the investment opportunities.
Gearing
On 30 September 2020, the Company had drawn down the two, two-year fixed rate, term loans of JPY 3.8bn and USD 36m from ING Bank N.V. Both loans fall due for repayment on 30 September 2022. The JPY loan has been fixed at an all-in rate of 0.90% pa and the USD loan has been fixed at an all-in rate of 1.1% pa. The Company has repaid the two, two-year loan facilities with ING Bank N.V of USD 23.3m and JPY 5.2bn dated 2 October 2018.
Important Information: This website is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price.
It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document,the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this website is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.
Benchmarks: The following benchmark index is used: Dow Jones Global Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Fund was similar to the indices in composition or risk. The benchmark used to calculate the performance fee is provided by an administrator on the ESMA register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.
Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
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Source: London Stock Exchange. Delayed by at least 15 minutes.
Invalid Dates
Update chart1 month | 3 month | YTD | 1 year | 3 years | 5 years | 10 years | |
---|---|---|---|---|---|---|---|
Ordinary Share Price (TR) | -3.60 | -7.34 | 24.42 | 13.25 | 2.39 | 82.40 | 359.81 |
NAV per share | -1.95 | -5.32 | 27.18 | 19.75 | 14.15 | 99.50 | 440.38 |
Benchmark | -0.85 | -3.69 | 31.81 | 27.28 | 35.87 | 125.57 | 482.12 |
Source: Bloomberg & HSBC Securities Services (UK) Limited, percentage growth, Net of Fees in GBP terms. Past performance is not indicative or a guarantee of future results.
Financial YTD | 31.10.22 31.10.23 | 29.10.21 31.10.22 | 30.10.20 29.10.21 | 31.10.19 30.10.20 | 31.10.18 31.10.19 | |
---|---|---|---|---|---|---|
Ordinary Share Price (TR) | 10.57 | 13.25 | -24.66 | 20.00 | 47.95 | 20.41 |
NAV per share | 12.03 | 19.75 | -24.73 | 26.65 | 49.01 | 17.29 |
Benchmark | 12.77 | 27.28 | -20.30 | 33.94 | 39.67 | 18.87 |
Important Information: This website is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price.
It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document,the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this website is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.
Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Benchmarks: The following benchmark index is used: Dow Jones Global Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Fund was similar to the indices in composition or risk. The benchmark used to calculate the performance fee is provided by an administrator on the ESMA register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.
Performance/Investment Process/Risk: Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Factors affecting the Company’s performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Company’s investment policy allows for it to enter into derivatives contracts. Leverage may be generated through the use of such financial instruments and investors must be aware that the use of derivatives may expose the Company to greater risks, including, but not limited to, unanticipated market developments and risks of illiquidity, and is not suitable for all investors. Those in possession of this document must read the Company’s Investment Policy and Annual Report for further information on the use of derivatives. Past performance is not a guide to or indicative of future results. Future returns or income are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), or guaranteed by any bank, and may lose value. No investment process or strategy is free of risk and there is no guarantee that the investment process or strategy described herein will be profitable.
Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
Microsoft | 12.4 | |
Apple | 8.2 | |
Alphabet | 7.4 | |
NVIDIA | 7.1 | |
Meta Platforms (Facebook) | 4.1 | |
Advanced Micro Devices | 3.1 | |
Samsung Electronics | 2.8 | |
TSMC | 2.5 | |
Amazon | 2.3 | |
ServiceNow | 2.0 | |
Top 10 Holdings | 51.9 | |
Rest of Portfolio | 48.1 |
Total Number of Positions 95
Software | 27.0 | |
Semiconductors & Semiconductor Equipment | 24.5 | |
Interactive Media & Services | 13.3 | |
Technology Hardware, Storage & Peripherals | 12.6 | |
IT Services | 4.1 | |
Broadline Retail | 2.3 | |
Electronic Equipment, Instruments & Components | 2.1 | |
Communications Equipment | 2.0 | |
Entertainment | 1.2 | |
Financial Services | 1.0 | |
Machinery | 0.8 | |
Automobiles | 0.7 | |
Healthcare Equipment & Supplies | 0.7 | |
Aerospace & Defense | 0.5 | |
Other | 1.6 | |
Cash | 5.6 | |
Note: Totals may not sum due to rounding.
Key | GBP | |
Total Net Assets | £3092.3m | |
AIC Gearing Ratio | n/a | |
AIC Net Cash Ratio | 5.63% | |
Large Cap (>US$10bn) | 89.4 | |
Mid Cap (US$1 - 10bn) | 9.9 | |
Small Cap (<US$1bn) | 0.7 | |
Cash | 5.6 |
US & Canada | 75.6 | |
Asia Pac (ex-Japan) | 9.5 | |
Japan | 4.4 | |
Europe (ex UK) | 3.2 | |
Middle East & Africa | 1.4 | |
Cash | 5.6 | |
Important Information: This website is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price.
It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document,the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this website is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.
Holdings: Portfolio data is “as at” the date indicated and should not be relied upon as a complete or current listing of the holdings (or top holdings) of the Company. The holdings may represent only a small percentage of the aggregate portfolio holdings, are subject to change without notice, and may not represent current or future portfolio composition. Information on particular holdings may be withheld if it is in the Company’s best interest to do so. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediately preceding 12 months is available upon request. This document is not a recommendation to purchase or sell any particular security. It is designed to provide updated information to professional investors to enable them to monitor the Company.
Benchmarks: The following benchmark index is used: Dow Jones Global Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Fund was similar to the indices in composition or risk. The benchmark used to calculate the performance fee is provided by an administrator on the ESMA register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.
Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Allocations: The strategy allocation percentages set forth in this webpage are estimates and actual percentages may vary from time-to-time. The types of investments presented herein will not always have the same comparable risks and returns. Please see the private placement memorandum or prospectus for a description of the investment allocations as well as the risks associated therewith. Please note that the Company may elect to invest assets in different investment sectors from those depicted herein, which may entail additional and/or different risks. Performance of the Company is dependent on the Investment Manager’s ability to identify and access appropriate investments, and balance assets to maximize return to the Company while minimizing its risk. The actual investments in the Company may or may not be the same or in the same proportion as those shown herein.
Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
Important Information: This website is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price.
It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document,the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this website is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Statements/Opinions/Views: All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capital. This material does not constitute legal or accounting advice; readers should contact their legal and accounting professionals for such information. All sources are Polar Capital unless otherwise stated.
Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.
Holdings: Portfolio data is “as at” the date indicated and should not be relied upon as a complete or current listing of the holdings (or top holdings) of the Company. The holdings may represent only a small percentage of the aggregate portfolio holdings, are subject to change without notice, and may not represent current or future portfolio composition. Information on particular holdings may be withheld if it is in the Company’s best interest to do so. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediately preceding 12 months is available upon request. This document is not a recommendation to purchase or sell any particular security. It is designed to provide updated information to professional investors to enable them to monitor the Company.
Benchmarks: The following benchmark index is used: Dow Jones Global Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Fund was similar to the indices in composition or risk. The benchmark used to calculate the performance fee is provided by an administrator on the ESMA register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.
Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Forecasts: References to future returns are not promises or estimates of actual returns Polar Capital may achieve. Forecasts contained herein are for illustrative purposes only and does not constitute advice or a recommendation. Forecasts are based upon subjective estimates and assumptions about circumstances and events that have not and may not take place.
Performance/Investment Process/Risk: Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Factors affecting the Company’s performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Company’s investment policy allows for it to enter into derivatives contracts. Leverage may be generated through the use of such financial instruments and investors must be aware that the use of derivatives may expose the Company to greater risks, including, but not limited to, unanticipated market developments and risks of illiquidity, and is not suitable for all investors. Those in possession of this document must read the Company’s Investment Policy and Annual Report for further information on the use of derivatives. Past performance is not a guide to or indicative of future results. Future returns or income are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), or guaranteed by any bank, and may lose value. No investment process or strategy is free of risk and there is no guarantee that the investment process or strategy described herein will be profitable.
Allocations: The strategy allocation percentages set forth in this webpage are estimates and actual percentages may vary from time-to-time. The types of investments presented herein will not always have the same comparable risks and returns. Please see the private placement memorandum or prospectus for a description of the investment allocations as well as the risks associated therewith. Please note that the Company may elect to invest assets in different investment sectors from those depicted herein, which may entail additional and/or different risks. Performance of the Company is dependent on the Investment Manager’s ability to identify and access appropriate investments, and balance assets to maximize return to the Company while minimizing its risk. The actual investments in the Company may or may not be the same or in the same proportion as those shown herein.
Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
ISIN | GB0004220025 |
---|---|
SEDOL | 0422002 |
London Stock Exchange | PCT |
LEI |
LEI Polar Capital LLP | 4YW3JKTZ3K1II2GVCK15 |
£0 - £2bn | 0.80% |
£2bn - £3.5bn | 0.70% |
Over £3.5bn | 0.60% |
Performance | 10% over Benchmark |
Ongoing Charges | 0.81% |
The performance fee is subject to a highwater mark and cap. Further details can be found under Corporate Documents. Ongoing charges are calculated at the latest published year end date, and exclude any performance fees.
Important Information: This website is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any Fund or Company managed by Polar Capital. It may not be reproduced in any form without the express permission of Polar Capital. The law restricts distribution of this document in certain jurisdictions; therefore, it is the responsibility of the reader to inform themselves about and observe any such restrictions. It is the responsibility of any person/s in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Polar Capital Technology Trust plc is an investment company with investment trust status and as such its ordinary and subscription shares are excluded from the FCA’s (Financial Conduct Authority’s) restrictions which apply to non-mainstream investment products. The Company conducts its affairs and intends to continue to do so for the foreseeable future so that the exclusion continues to apply. Subscription shares will have a dilutive effect on ordinary shares when the net asset value (NAV) is greater than the conversion price.
It is not designed to contain information material to an investor’s decision to invest in Polar Capital Technology Trust plc, an Alternative Investment Fund under the Alternative Investment Fund Managers Directive 2011/61/EU (“AIFMD”) managed by Polar Capital LLP the appointed Alternative Investment Manager. In relation to each member state of the EEA (each a “Member State”) which has implemented the AIFMD, this document may only be distributed and shares may only be offered or placed in a Member State to the extent that (1) the Fund is permitted to be marketed to professional investors in the relevant Member State in accordance with AIFMD; or (2) this document may otherwise be lawfully distributed and the shares may otherwise be lawfully offered or placed in that Member State (including at the initiative of the investor). As at the date of this document,the Company has not been approved, notified or registered in accordance with the AIFMD for marketing to professional investors in any member state of the EEA. However, such approval may be sought or such notification or registration may be made in the future. Therefore this website is only transmitted to an investor in an EEA Member State at such investor’s own initiative. SUCH INFORMATION, INCLUDING RELEVANT RISK FACTORS, IS CONTAINED IN THE COMPANY’S OFFER DOCUMENT WHICH MUST BE READ BY ANY PROSPECTIVE INVESTOR.
Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.
Country Specific disclaimers: The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and the holders of its shares will not be entitled to the benefits of the Investment Company Act. In addition, the offer and sale of the Securities have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). No Securities may be offered or sold or otherwise transacted within the United States or to, or for the account or benefit of U.S. Persons (as defined in Regulation S of the Securities Act). In connection with the transaction referred to in this document the shares of the Fund will be offered and sold only outside the United States to, and for the account or benefit of non U.S. Persons in "offshore- transactions" within the meaning of, and in reliance on the exemption from registration provided by Regulation S under the Securities Act. No money, securities or other consideration is being solicited and, if sent in response to the information contained herein, will not be accepted. Any failure to comply with the above restrictions may constitute a violation of such securities laws.
Fund Manager Commentary As at 31 October 2023
Key points
Market review
Global equity markets registered their third consecutive monthly decline in October. The MSCI All Country World Net Total Return Index returned -2.5% while the S&P 500 Index and the DJ Euro Stoxx 600 Index delivered -1.6% and -3.2% respectively (in sterling terms). The S&P 500 entered correction territory, having fallen c7% from its July highs. Market sentiment was shaken by an increase in geopolitical risk following Hamas’s terrorist attack in Israel. The interest rate environment provided a further headwind as the 10-year US Treasury yield breached 5% temporarily, having moved c50bps (or two standard deviations) higher during the month. Yields rose on the back of stronger than expected economic data, as well as other factors influencing the Treasury market including increased issuance (to fund government spending), ongoing quantitative tightening (lower demand from the Federal Reserve – the Fed) and commentary from the Fed which reiterated the ‘higher for longer’ interest rate message given strong economic growth and a still-tight labour market.
The US economy expanded at an annualised 4.9% in 3Q23, above market forecasts of 4.3% and up from the 2.1% expansion in 2Q23. The acceleration in economic growth (as measured by Gross Domestic Product – GDP) was primarily driven by increased consumer spending, private inventory investment and federal government spending. The labour market is gradually easing but remains resilient despite the Fed's tightening activity. The US economy added 336,000 jobs in September, well above forecasts of 170,000 and even more than the upwardly revised 225,000 jobs added in August. The jobs increase was driven by strength in understaffed sectors such as leisure, government and healthcare. It was the largest increase in eight months and well above the 70,000-100,000 needed per month to keep up with the growth in the working-age population. However, average hourly earnings only increased +0.2% m/m for the second month (below forecasts of +0.3%), which was more encouraging given concerns around wage inflation.
The US Consumer Price Index (CPI) rose +0.4% m/m in September (above forecasts of +0.3%), with rising shelter and energy costs large contributors. The annual inflation rate was unchanged at +3.7% year on year (y/y; above forecasts of +3.6% y/y), up from the June low at +3% y/y, but well below peak levels. Core CPI, which excludes volatile items such as food and energy, slowed for the sixth month to +4.1% y/y, down from +4.3% y/y in August. Forward-looking inflation measures increased but still appear relatively benign. The Producer Price Index (PPI) increased +2.2% y/y in September (well above forecasts of +1.6% y/y), up from +2% y/y in August and the preliminary University of Michigan Consumer Sentiment Survey noted renewed concern from consumers about inflation, likely reflecting higher gasoline prices. Year-ahead inflation expectations rose to 3.8% in September from 3.2% in August, the highest since May 2023, and the five-year outlook increased to 3% from 2.8%.
The minutes of the September Federal Open Market Committee (that sets the Fed’s monetary policy) meeting indicated “a majority of participants judged that one more [rate] increase…would likely be appropriate, while some judged it likely that no further increases would be warranted.” Consumers have continued to spend, but officials appear worried about the impact from tighter credit conditions, less fiscal stimulus and the resumption of student loan repayments. All members agreed they should proceed carefully on future decisions, which will be based on incoming data rather than any predetermined path.
Technology review
The technology sector outperformed the broader market in October, as the Dow Jones Global Technology Net Total Return Index returned -0.9%. Large-cap technology stocks once again significantly outperformed their small and mid-cap peers as the Russell 1000 Technology Index (large cap) and Russell 2000 Technology Index (small cap) delivered returns of -0.3% and -8.4% respectively. This year, the gap between the two has extended to a remarkable c40 percentage points (ppts) year-to-date as the Russell 1000 Technology Index’s +41.7% return has dwarfed the Russell 2000 Technology Index’s +1.9%. This has presented a structural headwind to the Trust’s relative performance given our structural overweight to small and mid-cap growth technology companies.
There was also significant dispersion between technology subsectors. The Philadelphia Semiconductor Index (SOX) returned -5.8% on concerns around inventory destocking, while the NASDAQ Internet Index declined -1.8% and the Bloomberg Americas Software Index was flat.
Earnings season began in earnest in October. Results and guidance were mixed, while stock reactions were volatile. In the internet sector, we added to our position in Amazon after the company delivered results ahead of expectations across the board. Total revenue grew +11% y/y in constant currency (cc1]), with resilient performance in the retail business and acceleration in advertising revenue to +25% y/y cc from +22% y/y cc in Q2. Amazon Web Services’ (AWS) growth was stable at +12% y/y, in line with muted investor expectations given concerns regarding further cloud optimisation headwinds. Operating income was $11.2bn, well above consensus estimates of $7.7bn. This was driven by strong retail margins in North America (continued shipping and fulfilment efficiency gains from regionalisation) and AWS operating margins which increased +6% quarter on quarter (q/q) to 30%, the highest level since 1Q22, driven by headcount reduction. Revenue guidance for 4Q23 was only in line with market forecasts despite positive commentary about holiday season sales and stronger new AWS project growth and artificial intelligence (AI) workloads growing rapidly. Operating income guidance of $7-11bn was well above consensus at $8.6bn and we added to our position following results.
We reinitiated a position in Netflix after it reported an 8.8 million increase in subscribers during the quarter, well above consensus forecasts of 6.1 million, driven by the ongoing crackdown on password sharing. A similar increase in subscribers is expected in 4Q23. The company also announced it is increasing the prices of two of its subscription plans in the US, the UK and France, which should also contribute to revenue growth going forwards. Management is focused on increasing free cashflow (FCF), with cash spending on content now expected to be c$13bn for the full year (below market forecasts at $15bn), enabling them to raise full year FCF guidance from >$5bn to c$6.5bn at the midpoint, implying FCF will be 50% above consensus forecasts in 4Q23.
Meta Platforms (Facebook) delivered a strong quarter, with revenue up +23% y/y, operating income and earnings per share (EPS) above market forecasts, driven robust engagement and monetisation in a recovering advertising market. Enthusiasm was tempered by 4Q23 revenue guidance, which was only in line with market forecasts, with management noting softer advertising spending at the start of the quarter coinciding with the turmoil in the Middle East. Management understandably characterised the FY24 revenue outlook as “uncertain” given the “volatile” macroeconomic and geopolitical environment. FY23 operating cost guidance was lowered and the FY24 outlook was below consensus expectations, despite the operating loss at Reality Labs (Metaverse) "meaningfully expanding" due to ongoing product development efforts in augmented reality and hiring activity coming back. Notably, FY23 capital expenditure (capex) guidance was also cut from $27-30bn to $27-29bn and the FY24 target of $30-35bn was well below expectations.
We reduced our position in Alphabet after mixed results. The overall advertising business was strong, with search revenue growth accelerating to +11% y/y (from +5% y/y in Q2) and YouTube accelerating to +12% y/y from +4% y/y in Q2, although expectations had been high given advertising market checks were generally positive. Management commentary around the integration of generative AI into search and advertising products was encouraging. However, cloud revenue growth decelerated to +22% y/y, below expectations at +26% y/y, due to ongoing spend optimisation efforts by clients. More positively, growth of the company’s revenue backlog (which is mainly cloud) accelerated to +24% y/y from +18% y/y in Q2. Operating income was below expectations due to slightly higher expenses across divisions and some one-time items, and the company was non-committal regarding operating leverage in 2024.
We maintained our position in Microsoft after the company delivered strong top and bottom-line results. Revenue grew +13% y/y, while operating expenditure only grew +1% y/y, leading to a better-than-expected operating margin. Microsoft Azure (cloud) grew +28% y/y cc, with 3pts of growth from AI services above guidance for 2pts and up from 1pt last quarter, supported by increased graphics processing unit (GPU) capacity and utilisation. Azure AI services now has 18,000 customers (up from 11,000 last quarter) and is at a >$1.5bn annualised revenue run rate (for context it took Azure around seven years to reach this level). Management guided for Azure to grow +26-27% y/y cc next quarter with an “increasing contribution from AI” but growth is expected to remain “roughly stable” in 2H24 (June year-end), in line with consensus estimates, but implying a deceleration in non-AI Azure growth due to ongoing customer optimisation trends. Commentary about Microsoft 365 Copilot (AI assistant) was encouraging with 40% of Fortune 100 companies in the early access program, with management noting that “feedback is very, very positive” with users “hitting the Copilot button across every surface”. The company continues to build out its AI infrastructure, guiding to capital expenditure of $11.2bn in the next quarter, above expectations at $10.8bn.
ServiceNow, a leading enterprise software company, rallied after reporting current remaining performance obligation (cRPO) – the sum of deferred revenue and backlog that the company is obliged to deliver over the next 12 months – growth of +24% y/y cc (above market forecasts at +23% y/y cc), with no deceleration from Q2, although this was primarily driven by strong performance in their federal business (19 federal deals >$1m, three over $10m and a mega-deal with the US Air Force, the third largest deal in company history. Q4 cRPO guidance was in line with expectations at +21% y/y and operating margin guidance was better than expected at 29.5% due to revenue outperformance and better cost control. Encouragingly, ServiceNow closed four deals for its new generative AI-enabled Pro+ product on the first day of trading and called out a strong pipeline of more than 300 customers for the product. However, elsewhere within software, fundamentals appear more mixed. We reduced our position in marketing software company HubSpot due to nascent concerns about the health of its small/medium-sized business customer base and more mixed channel checks.
We also reduced our position in Tesla following its earnings report. Vehicle deliveries (+27% y/y) were lower than market estimates, due to planned factory downtime for production line upgrades, likely combined with softening demand. Revenue and automotive gross margin (ex-regulatory credits) were consequently lower than anticipated, while operating margin was impacted by a +43% y/y rise in operating expenses, driven by Cybertruck prototype builds and pilot production testing combined with spend on AI technologies like Full Self-Driving (FSD), Optimus (humanoid robot) and Dojo (AI supercomputer). Although full-year delivery guidance was maintained at 1.8 million units, commentary regarding 2024 was more downbeat due to challenging macroeconomic conditions, particularly higher interest rates which are reducing vehicle affordability. The $7,500 tax credit from the Inflation Reduction Act becomes a point-of-sale rebate starting in January 2024 and Tesla’s new low-cost leasing options in the US may help offset this. Management commentary on FSD was encouraging, with progress inflecting since the company transitioned to an end-to-end neural net approach. Tesla raised its capital expenditure guidance from $7-9bn to >$9bn in 2023 due to AI investments. We remain excited about the potential for AI to transform Tesla, but our reduced position size reflects near-term auto industry/cyclical headwinds.
These cyclical headwinds were apparent within the semiconductor subsector as results outside AI were more mixed. Semiconductors were also buffeted by further restrictions from the US government on the sale of more advanced AI chips into China, which are expected to have a negative impact on NVIDIA and Advanced Micro Devices (AMD), as well as dampen China wafer fabrication equipment spending in 2024.
TSMC reported revenue of -14% y/y (in dollar terms), in line with market forecasts but better than expected gross profit driven by higher-than-expected utilisation and a currency tailwind. The company guided revenue +11% q/q for next quarter, 5% above forecasts, benefiting from the “continued strong ramp of 3nm” and "early sign of stabilisations" in PC and smartphone markets. The automotive segment was -24% q/q, -11% y/y, with an inventory correction in progress according to management who also highlighted the persistent strength of AI-related demand, which they expect to grow even stronger into next year. This strength is driven not only by data centres, but also by the growth of edge AI in devices like smartphones and PCs. Overall, “healthier growth” is expected in 2024, with limited impact from a US AI chip ban. Capital expenditure in 2023 was reduced to $32bn from $32-36bn, while in 2024 and beyond, management expect capital intensity to decline for the next few years.
We added to AMD after a solid print, with revenue up +8% q/q, +4% y/y, driven by data centre growth as sales of the company’s next generation EPYC central processing units (CPU), Genoa and Bergamo, began to ramp (gaining market share). Q4 guidance for revenue to grow +5% q/q (+9% y/y) to $6.1bn was below market forecasts at $6.4bn. More importantly, the company still expects to hit their target for data centre to grow +50% half-over-half, while the company’s new MI300 AI GPU is expected to generate $400m of revenue in both 4Q23 and 1Q24, and $2bn in 2024. Management also said that GPU gross margins would be accretive to the corporate average. AMD are holding an AI event in December which could be a positive catalyst.
Monolithic Power Systems reported in-line results and guidance. Weaker than expected results in the storage and computing, automotive, industrial, communications and consumer segments, which were all down q/q, were offset by strength in enterprise data, which grew +106% q/q (+31% y/y), driven by AI-related demand. GPU-related sales were >$60m and management expects sequential growth in 4Q23 and likely through 1H24.
Lattice Semiconductor also reported in-line results, with revenue +1% q/q (+11% y/y) and adjusted EPS +10% y/y. Lower than expected revenue in the automotive and industrial segment (-5% q/q; +28% y/y) was offset by higher than expected revenue in the communications and computing (+6% q/q; -6% y/y) and consumer (+30% q/q; +30% y/y) end markets. However, next quarter guidance for revenue to be -8% q/q was below expectations, driven by further weakness in industrial end markets, as well as weakening automotive demand which has now spread from Asia to Europe. However, management commentary about the design win pipeline for the new Avant platform was encouraging, being significantly larger than the Nexus platform was at the same point in its ramp.
ASML reported mixed quarterly results with revenue up +15% y/y, modestly below expectations, but earnings coming in better. The company reported a very low order intake, especially in extreme ultraviolet (EUV) equipment and announced its first view on 2024, which is expected to be a transitional year with a stable level of activity, followed by a marked recovery in 2025 driven by production from new semiconductor fabrication plants. Management believes only 10-15% of its China shipments (leading edge equipment) are likely to be impacted by the additional restrictions. Remaining China shipments should not be at immediate risk as they are trailing edge.
Despite underwhelming results from networking/telecommunication equipment peers, Arista Networks delivered strong results driven by market share gains in enterprise switching and routing, and management raised full-year revenue growth guidance to +33% (well ahead of its initial forecast at +25%). Unimicron Technology fared less well as softer demand from Intel (due to a slower than expected server chip ramp) offset increasing demand from AI servers, causing gross margin to miss, but we believe guidance looks achievable from here.
Outlook
While there are understandable concerns about a near-term cyclical slowdown, there are also potential early signs that technology adoption is having a positive impact on macroeconomic prospects. Third quarter productivity (a measure of output per labour hour and which is “not everything, but in the long run, it's almost everything”, according to Nobel laureate Paul Krugman) positively surprised for the second consecutive quarter. Strong economic growth is not inflationary if it is driven by productivity and is one of the key levers by which living standards can rise sustainably. Goldman Sachs has estimated generative AI will affect productivity sufficiently within their 10-year forecast horizon to bring a potential boost of 10-15% to global GDP cumulatively and have upgraded their global GDP forecasts accordingly.
Meanwhile, central banks’ aggressive tightening actions over the past 18 months appear to have had the desired effect. Inflationary concerns which weighed on the market last year have significantly abated, as US core personal consumption expenditure (PCE, which excludes volatile items such as food and energy) has fallen from c5-5.5% last year to 3.7% in September. In Europe, inflation is falling even more sharply, to 2.9% y/y in October from 4.3% in September, with some countries experiencing disinflation. The UK, however, for now remains an outlier with only a small reduction in September with core CPI at +6.1%, slightly above expectations.
Further disinflation is expected over the coming months as the labour market continues to rebalance. The US jobs-workers gap has declined to c2.5 million from six million while wage growth has fallen >1.5pts to 4.2% annualised, according to Goldman Sachs. US growth was also stronger than expected during this period, indicating the Fed has thus far managed to improve the inflation trend without tipping the economy into recession.
Tighter financial conditions and higher rates have raised other concerns (not least for risk assets), many of which are only beginning to be felt. Business models built on the availability of cheap debt have unsurprisingly come under pressure. We have seen this reflected already in the equity market as high quality, low leverage and low volatility factors have significantly outperformed. Furthermore, there are now alternatives to equities competing for investors’ capital which were less appealing during the recent low interest rate era. This backdrop has provided further support for the technology sector where net cash is often the norm (the exceptions being mostly mature technology companies receptive to M&A and companies formerly owned by private equity) and where the potential returns from high growth companies can still be compelling when lower return strategies look relatively less appealing (albeit with commensurate risk/volatility).
Third-quarter earnings season has been better than feared. With c75% of S&P 500 companies having reported Q3 earnings, 73% have beaten on earnings and 58% have beaten on sales. However, even as large-cap technology stocks have held up well, overall stock reactions have skewed negatively, materially so in some cases. Firms beating have outperformed by +100bps the following day, whereas companies missing have lagged by -330bps. We have also seen very big moves down where misses have been unusual (Paycom* -38% on the day) or outsized (SolarEdge* -27%). Fortunately, we have avoided most of these disappointments having earlier reduced our exposure to rate-sensitive areas such as solar, autos and small and mid-sized businesses (SMB).
Encouragingly, aggregate public cloud revenue growth has stabilised (at a >$190bn revenue run rate) after eight consecutive quarters of y/y deceleration, as AI-driven strength at Microsoft offset some softness at Google. However, the shape of any potential reacceleration is uncertain. Q4 guidance from technology companies has, on balance, remained conservative given uncertainties associated with the lagged impact of the higher rate environment on both consumer and corporate spending. The potential for a fourth quarter technology ‘budget flush’ remains, but it is possible/likely that the highest IT priorities (such as AI and cybersecurity) crowd out other areas of spend. Consensus expectations for mid-teens cloud capex growth for 2024 look highly achievable to us as hyperscale cloud providers invest aggressively ahead of anticipated AI-related demand.
There has, however, been a healthy tempering of expectations for some of the leading suppliers into the AI infrastructure buildout (most notably NVIDIA) after exuberance early in the year, but we see this as a buying opportunity in some of the stocks we believe will be best positioned to benefit from the build-out of the new AI computing stack which we believe remains in its infancy.
While it is early days, we are seeing encouraging early signs for the adoption of AI and the impact of the AI transformation on companies up and down the supply chain. AI services accounted for 3pts of Microsoft Azure's y/y growth, compared to just 1pt last quarter, indicating a $1.5bn run rate. Azure-OpenAI customers increased to 18,000 from 11,000 last quarter, and 40% of the Fortune 100 are trialling the M365 Copilot product (which launched on 1 November). Meta Platforms spoke to a mid-single-digit increase in time spent on their main platforms due to AI-powered recommendation improvements. Meanwhile Alphabet said generative AI projects on its AI Vertex platform were up 7x from the previous quarter.
While market returns have been strong at the index level they mask a challenging market characterised by poor/narrow breadth. While the NASDAQ 100 Index is up 32.1% year to date, its equal-weighted counterpart the NDXE is up ‘only’ 12.2%. Meanwhile the Bloomberg Magnificent Seven Price Index (an equal-weighted index of Microsoft, Meta Platforms, Amazon, Apple, Alphabet, NVIDIA and Tesla) is up a staggering 77.7%, in part due to the significant outperformance of stocks perceived to be AI winners. In contrast, the Russell 2000 has recently broken its 2022 lows (and is close to November 2020 levels). It would be unusual for such extremes to continue and we are alive to the potential for a period of mean reversion at some stage, perhaps accompanied by a retracement in real yields given current defensive investor positioning and supportive seasonality into the calendar year end.
Having held a higher-than-normal level of cash coming into earnings season, we have begun to put this to work. Given the highly uncertain geopolitical backdrop and the fact that our portfolio beta is naturally higher than the benchmark due to our growth-focused investment approach, we continue to hold some NASDAQ Index put options (to help ameliorate portfolio beta in the event of a sharp drawdown). Our primary focus remains on positioning the portfolio in favour of companies that should prove important AI enablers and beneficiaries; at the time of writing, we believe AI enablers and beneficiaries already explain more than three-quarters of the portfolio in aggregate.
* not held
1 Constant currency reporting is an accounting technique used by companies to present financials year-over-year for comparative purposes without the effects of currency movements
Ben Rogoff
Ben joined Polar Capital in May 2003. He is lead manager of Polar Capital Technology Trust plc and is a Fund Manager of the Polar Capital Global Technology Fund and Polar Capital Artificial Intelligence Fund.
Alastair Unwin
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