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April 2019

Market Review

Global equities continued to rally in April with the MSCI All Country World gaining 3%, while the S&P 500 and the DJ Euro Stoxx 600 appreciated 3.7% and 3.5% respectively, all in sterling terms. The S&P 500 closed the month at an all-time high of 2,945 points, as investor optimism was reinforced by improving macroeconomic data from China, continued central bank support and positive commentary regarding the progress of US/China trade talks which outweighed continued weakness in Europe and ongoing concerns about global growth. Large caps outperformed small caps, with the Russell 1000 gaining 3.7% versus the Russell 2000 which rose 3%. Volatility declined to pre-sell-off levels with the VIX Index falling back to 13.1.

In the US, macroeconomic data remained mixed. According to initial GDP estimates, the economy grew by an annualised 3.2% in 1Q19, up from 2.2% in 4Q18 and well above expectations of 2%, although the upside was driven by a large gain in business inventories and a reduction in imports, both transitory and with potential negative connotations. Nevertheless, the economic expansion that followed the great recession remains in place and looks set to celebrate its 10th birthday in June. A month after that, it could become the longest expansion in US economic history. The Employment Situation report was encouraging, with non-farm payrolls up 196,000 in March, making February’s revised 33,000 look like an aberration, and the unemployment rate was unchanged at 3.8%. That said, the ISM Composite PMI declined from 54.6 in March to 52.8 in April, signalling the smallest rise in overall private sector activity since September 2016.

It appears that China’s fiscal and monetary stimulus has had a positive impact, with 1Q19 GDP printing at 6.5% y/y, slightly above expectations of 6.4% y/y, while several March activity indicators surprised on the upside, with industrial production 8.5% y/y (5.9% y/y expected), the highest since July 2014 and retail sales 8.7% y/y (8.4% y/y expected). The downside is that expectations for further stimulus have been dampened, with the PBOC describing the appropriate policy stance as “moderately tight” and appearing to inject less liquidity into the market. While US/China trade talks appear to be progressing, some key issues like forced technology transfers and enforcement mechanisms have yet to be resolved.

During the month, the market received another warning from IMF Managing Director Christine Lagarde that the world economy faces a “delicate moment” and the organisation cut its global growth outlook from 3.5% to 3.3%, the slowest rate since 2009. The IMF sharply downgraded its outlook for several euro-area economies, including Germany, where factory production remains subdued due to weaker global demand and tougher car emission standards. However, moderating inflation data and assurances from the Federal Reserve and the European Central Bank that monetary policy will remain accommodative continued to support global stock markets.

Technology Review

The technology sector continued its strong run of performance in April outperforming the broader market, the Dow Jones Global Technology Index gaining 6.1% in sterling terms during the month. The semiconductor sector once again outperformed as the Philadelphia Semiconductor Index (SOX) rose 11.1%. April witnessed a revival of the IPO market as a plethora of high profile companies came to market or announced their intensions to do so. These included Pinterest, Lyft, Zoom Video Communications, PagerDuty and Uber. Pinterest was the most notable deal for the Trust, in which we have subsequently built a full position. It is an attractive asset due to its somewhat unique characteristics of being a hybrid search engine and social media platform. Visual discovery has not yet been solved online and Pinterest is pioneering this movement. Users on the platform generate both data and intentions which is an attractive combination for advertisers.

As we approach the end of Q1 earnings season, technology sector fundamentals have remained encouraging, especially in the software and internet sub-sectors, but the reward for strong results have been more modest versus prior earnings seasons.

In the software sector, Medidata Solutions, the provider of clinical trial software, gained in mid-April as rumours surfaced that the company might be an acquisition target. These rumours remain unsubstantiated but help to highlight the value of the company’s biopharma client base and data assets. At month end its earnings report was in line with expectations and included commentary of a large enterprise deal with Stryker Corporation involving seven different software modules. ServiceNow produced an impressive earnings report with billings growth of 33% y/y while exceeding expectations on both operating margin and free cash flow. Guidance for 2019 subscription billings was raised to 32% y/y from 30-31%. Unfortunately, the subsequent news of the departure of its well-respected CFO Mike Scarpelli has weighed on the stock price.

While the SOX Index performed strongly, there was a very pronounced divergence in stock performance within the semiconductor space in April. Qualcomm’s share price gained over 50% as Apple and Qualcomm settled all pending litigation between the two companies. The settlement included an undisclosed one-time catch-up payment from Apple to Qualcomm, a six-year licence agreement and a multi-year chipset supply agreement which together will take Qualcomm’s earnings potential considerably higher. More positive news for the company followed as Intel announced shortly afterwards that they would exit the 5G mobile modem market to focus efforts on other areas. Access to 5G is likely to be the key behind the settlement and potentially means Apple will be able to launch a 5G iPhone as early as 2020. On the other hand, Xilinx failed to live up to lofty expectations as solid revenue growth in wireless communications (driven by 5G) was not enough to offset an abrupt slowdown in the data centre business, the resulting mix shift negatively impacting gross margins.

In networking, Arista Networks disappointed as strong Q1 results were overshadowed by a weak Q2 outlook which is being impacted by an unexpected spending pause at one hyperscale customer, with management citing very limited visibility into the timing of any recovery.

In the internet sector, Amazon continued its pattern of producing impressive operating profits in its Q1 results as its higher margin offerings (AWS, 3P Retail) and advertising continue to drive upside to analyst forecasts. Revenue growth continues to moderate on a year-over-year basis while its AWS segment, 41% y/y, is now a $28bn business on a trailing 12-month basis. During the earnings call, management announced an incremental $800m investment in Q2 to roll out free one-day shipping as the default to all Prime customers to replace the current two-day shipping offering, first across the US then globally.

Facebook delivered strong results as revenues and operating income exceeded estimates. Ad revenue growth only decelerated modestly (from 33% to 31% in constant currency), much better than feared, which, along with solid engagement trends, should help alleviate concerns over a sharp deceleration ahead. Over three million advertisers (out of a total of seven million) are now using the Facebook Stories’ ad unit to reach customers across the family of Facebook apps. This is an increase of one million advertisers during the quarter and a positive sign for ad auction dynamics. Encouragingly, guidance for 2019 capex and expenses were both reduced (excluding the $3bn accrual for the FTC inquiry).


Recently, China implemented a decentralised stimulus (VAT tax reduction), with fiscal policy doing the heavy lifting, rather than the infrastructure-driven stimulus seen in previous cycles. Tax-based fiscal stimulus is a balanced approach designed to trickle the benefit through the entire system, rather than simply boosting demand for commodities, much to the chagrin of some investors. There have already been several early indicators showing a pick-up in demand, such as loan demand, real estate investment and the consumer confidence Z-Score index. We hold the view that the modest rebound in demand will be reflected in companies’ earnings from Q3 this year. At the same time, we are also mindful that the size of the stimulus package this time, measured by aggregate fiscal deficit expansion, is estimated to be around 1.5% of 2019 GDP[i], smaller than during previous easing cycles in 2016 (2.3%), 2013 (2.4%) and 2009 (10.5%). But with commentary from central bankers globally remaining decidedly dovish, we continue to believe that a soft landing is likely the base case for this business cycle.

Near-term market direction is likely to rest on the status, and outcome, of US/China trade negotiations, with talks ongoing. While we continue to expect tough rhetoric during the process – the US recently applying an extra 25-year tariff on $250bn of Chinese imports – and see risks of a longer negotiation, we still believe an eventual deal is likely. Our concern is whether President Trump will consider the concessions offered by China on IP protection, trade deficit and market access as sufficient to claim victory absent any real progress in industrial policy (ie non-trade barriers/state subsidies), which it appears China is unlikely to concede.

While the bond market had factored in a rate cut in 2019 and another next year ahead of the FOMC meeting on 1 May, the Fed robustly pushed back on the idea that a cut was needed to arrest muted inflation. In another unusual reversal, the Fed referred to the recent softness in inflation as “transitory”, just six weeks after it called out low inflation as “one of the major challenges of our time”. By the end of the first week in May, the implied number of rate cuts fell to 1-1.5x by the end of 2020. We would expect this backdrop – modest economic growth and subdued policy risk – to continue to favour risk assets, especially growth stocks. Although recent manufacturing data points have been weak, we think the labour substitution-driven investment cycle, which we discussed during last month’s commentary, should lead to a US soft landing.

Our aim as always is to focus on stock-picking and assemble a portfolio of next-generation winners trading at attractive valuations which should allow the portfolio to deliver growth in excess of the benchmark which should, over time, manifest as outperformance. Of course, there must be a point when macroeconomic weakness shows up in next-generation fundamentals and/or there are periods (usually growth scares) when multiple compression outweighs the growth. While we remain constructive for now, we do expect further volatility this year and will be watching a number of indicators closely including credit spreads, yield curve inversion, China growth, bank lending and inflationary pressure.

Against a backdrop of slower global growth, we expect investors to continue to gravitate towards, and potentially crowd into, genuine growth assets as we have seen during the recent market rebound. Near term US/China trade negotiations are reaching a tense conclusion. While a deal is widely expected it is not a given and the future of the talks would pressure global growth expectations. With this in mind, after a strong run of recent performance we have taken profits in selected stocks and increased our cash levels. We also continue to hold a modest amount of out-of-the-money Nasdaq (NDX) put options, which, combined with cash, are intended to soften the portfolio beta which is higher than the benchmark due to our growth-centric investment style. Absent a US recession or a material deterioration in the global economy, we expect many of our holdings to deliver robust growth supported by powerful secular tailwinds. Valuations have expanded – a trend which we do not believe will continue – but even with modest multiple compression, strong underlying growth could still drive attractive returns for investors over the balance of the year, particularly if there is a US/China trade resolution.

[i] <The Coming Cyclical and Structural Inflection Points>, China Economics Series, Morgan Stanley Research, April 2019

Ben Rogoff


Important Information: This document 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 and is not intended for private investors. This document is only made available to professional clients and eligible counterparties. 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 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. 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 Fund 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 document 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 World 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 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 Company was similar to the indices in composition or risk.

Regulatory Status: Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is registered as an investment adviser with the US Securities & Exchange Commission (“SEC”). A list of members is open to inspection at the registered office, 16 Palace Street, London, SW1E 5JD. FCA authorised and regulated Investment Managers are expected to write to investors in funds they manage with details of any side letters they have entered into. The FCA considers a side letter to be an arrangement known to the Investment Manager which can reasonably be expected to provide one investor with more materially favourable rights, than those afforded to other investors. These rights may, for example, include enhanced redemption rights, capacity commitments or the provision of portfolio transparency information which are not generally available. The Company and the Investment Manager are not aware of, or party to, any such arrangement whereby an investor has any preferential redemption rights. However, in exceptional circumstances, such as where an investor seeds a new fund or expresses a wish to invest in the Company over time, certain investors have been or may be provided with portfolio transparency information and/or capacity commitments which are not generally available. Investors who have any questions concerning side letters or related arrangements should contact the Polar Capital Desk at the Registrar on 0800 876 6889. The Company is prepared to instruct the custodian of the Company, upon request, to make available to investors portfolio custody position balance reports monthly in arrears.

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 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 document 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 Company 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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Important Legal Information

Launched in 1996, Polar Capital Technology Trust plc (“PCT”) has grown to become a leading European investor with a multi-cycle track record. Managed by a team of dedicated technology specialists, the PCT aims to maximise long-term capital growth by investing in a diversified portfolio of technology companies from around the world. The managers’ core belief in rigorous fundamental analysis, and being unconstrained by not following a benchmark, enables PCT to deliver global equity market outperformance through exposure to a universe of over 3,000 companies.

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The information contained within this website is issued by Polar Capital Technology Trust plc (‘Polar Capital Technology Trust’) and is provided for reference purposes only. Nothing herein is intended to be construed as an offer, invitation or inducement to engage in investment activity, or investment advice or recommendation, in relation to the shares of Polar Capital Technology Trust and should not be relied upon as such by any person. Prospective investors should take advice from their financial or other professional advisers before making any investment decision.

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The securities of Polar Capital Technology Trust referred to on this website (the "Securities") have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in or into the United States or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act) absent registration under the Securities Act or pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Polar Capital Technology Trust will not be registered under the U.S. Investment Company Act of 1940, as amended, and investors in the Securities will not be entitled to the protections of that Act.

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Please remember that past performance of an investment is not necessarily a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. The market value of the shares of Polar Capital Technology Trust may not reflect the underlying net asset value of the investments held by Polar Capital Technology Trust. Polar Capital Technology Trust is able to borrow to raise further funds for investment purposes if the fund manager and the board of directors consider that it may be commercially advantageous to do so. This is generally described as “gearing”. An investment trust which has made investments as a result of gearing may have a more volatile share price as a result; gearing can increase shareholder returns in rising markets but conversely can increase the extent to which the value of the funds attributable to shareholders decreases in falling markets. Tax assumptions may change if the law changes, and the value of tax relief (if any) will depend upon your individual circumstances. Investors should consult their own tax advisers in order to understand any applicable tax consequences.


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