Polar Capital Technology delivers benchmark beating annuals – Polar Capital Technology (PCT) has this morning announced full-year results to 30 April 2019 with NAV up by 24.7% year-on-year while the shares rose by 17.9%.
PCT’s benchmark is the dow jones world technology index; PCT outperformed the benchmark, both last year by 5.6% and this year by 3.3%.
Mid-caps outperform
PCT’s manager, Ben Rogoff, had this to say on the portfolio’s performance over the year: “In the US, by far the most significant positive contribution to performance was made by AMD (227%) as the company began to better execute on its CPU and GPU product roadmaps. In addition, the portfolio benefited from its significant overweight exposure to software-as-a-service (SaaS) with companies such as Twilio (235%), Zendesk (89%), Alteryx (199%) and ServiceNow (72%) delivering outstanding returns amid strong growth and multiple expansion. Payment assets also contributed positively, with PayPal (58%), GMO Payments (67%) and Visa (37%) each benefitting from cashless payment and eCommerce growth. Unlike the previous year when stock selection was positive across all major regions, the US drove most of the outperformance reflecting its (and our) disproportionate exposure to the software subsector. In contrast, Europe and Japan both underperformed due to our outsized exposure to semiconductor and robotics companies in those markets.
However, stock selection remained positive across all market-capitalisation tiers, although mid-caps were responsible for a significant majority of overall outperformance. Relative performance was also positively impacted by underweight/zero positions in a number of large index constituents including IBM, Baidu and Intel that delivered disappointing returns during the year. The portfolio also benefited directly from one acquisition following the purchase of Red Hat by IBM at a 63% premium. This, together with a number of financial/private equity transactions, helped buttress software valuations during the year.
In terms of negatives, our position in GrubHub (-44%) proved the most significant stock level detractor to NAV as a more aggressive pricing environment in the online food and delivery market took its toll on margins. Microsoft – a large but underweight holding – was our largest stock level detractor to relative performance as it outperformed significantly during the year on further Office 365 and Azure-related growth. Computer gaming stocks were also a negative due to Chinese regulatory headwinds, delayed game launches and concern about the risk to existing franchises posed by Fortnite. Relative performance was also hindered by underweight positions in positive index contributors such as Qualcomm, Cisco and Broadcom. In addition, performance was impacted by a number of other individual stock moves due to disappointing earnings progress and/or valuation deratings such as Start Today, 2U and Spotify. While helpful during the late 2018 plunge, our decision to hold a modest amount of liquidity and index put options also detracted from performance in what proved to be another strong year for technology returns.”
PCT: Polar Capital Technology delivers benchmark beating annuals