Polar Capital Technology

Investing in global tech, PCT targets global leaders at favourable points in their development cycle…

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This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Polar Capital Technology

Polar Capital Technology (PCT) aims to maximise long-term capital growth through investment in a diversified portfolio of technology companies from across the globe. Led by Ben Rogoff, PCT enjoys a deep pool of fund managers and analysts specialising in technology companies, assessing companies from around the world.

Portfolio construction is benchmark aware, but willing to diverge to access what the team regard as the best growth opportunities. As we discuss under Portfolio, this includes an assessment of the ‘hype’ cycle surrounding the development and adoption of a technology and its integration into everyday life. Ben and the team look to invest in companies at the stage where they are reliably growing sales, and where operating margins are expanding, leading to potentially exponential earnings and free cash flow growth.

This tends to lead to a slightly larger-cap skew within PCT when compared to peers in the closed and open-ended universes. With the trust intended as a core technology equity holding, this is somewhat a consequence and an intention of the investment process and portfolio construction.

Returns, in line with the technology sector, have been strong, but PCT’s managers have been able to add value over a broader technology benchmark, as we highlight under Performance. Despite this, the trust has recently moved out to a Discount of over 5.6% (as at 30/09/2020). This is in contrast to the generally ebullient attitude to technology stocks in recent months, and the trust has frequently traded at a premium, allowing the board to grow the trust through issuance.

Kepler View

In our view the managers of PCT have demonstrated good portfolio and risk management. On a relative basis, PCT is perhaps best understood as a core proposition offering active but benchmark aware exposure to large-cap technology. It is also likely to be slightly less exposed to the US than most peers. We regard the managers’ recognition of the risks in Chinese companies, from both geopolitical and corporate governance perspectives, as a positive. PCT’s focus on presently profitable companies should potentially leave it relatively less vulnerable should valuations be challenged by rising discount rates.

Conversely, rumbling noises in the US Congress about potential antitrust actions against the tech giants could prove a headwind to relative returns compared to peers focussed on smaller companies. This latter point should be an important concern for all tech investors on an absolute level, as the presmued monolithic end-state of being for these companies would become imperilled. However, whilst there are noises surrounding this issue, the zeitgeist as yet seems to remain in favour of the technology goliaths, and the proposals mooted in Congress do not appear yet to carry majority support.

Bearing this in mind, with the biggest challenge to tech’s dominance seemingly likely to be regulatory, PCT’s discount of c. 5.6% looks attractive at this time for exposure to fairly tangible growth at a time when such a thing is in scarce supply globally. However, fees remain reasonably high given the scale of assets.

bull bear
Specialist access to profitable, rapidly growing companies Regulatory risks to the tech giants appear to be growing
Present discount looks attractive if bullish on the technology sector Charges are relatively high, especially considering scale of assets under management
Deep and experienced management team Slightly lower growth tilt than ATT, and could accordingly lag in a bull market
Callum Stokeld
Callum joined Kepler as an investment trust analyst in July 2019. Prior to this he worked as a senior investment analyst on a range of multi-manager, multi-asset portfolios, having previously worked at IFA firms in roles focused on oversight of fund selection and asset allocation. He graduated from the University of Glasgow with an honours degree in Law.

Fund History

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