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Roller-coaster year for Polar Capital Technology amid tech bull resurgence

Polar Capital Global Financials Trust - Don’t fear a slowing economy

Polar Capital Technology Trust (PCT) announced its full year results for the period 30 April 2023. The company’s NAV fell 2.8% for the year while shares fell 4.9% compared to the benchmark Dow Jones Global Technology Index return of 2.9%.

While recent performance for the trust has been impressive, driven by large cap US tech, the period in review was dominated by the global rotation away from growth which suffered its worst year compared to value stocks since 2000. While markets rebounded in 2023, with the tech-heavy NASDAQ Composite Index enjoying its strongest year-to-date performance since 2001, sentiment turned more negative in February as a slew of strong economic data for January challenged the excitement that the interest rate tightening cycle was largely complete. Investment grade global bond markets gave back their year-to-date gains, while corresponding equity market weakness saw US indices either approach or break 50-day moving averages as positioning and sentiment tailwinds came to an end and stocks began to fall on bad news or weak earnings reports. This period was followed by the SVB collapse which caused further reverberations around markets.

Thankfully for PCT, the technology sector’s fortunes reversed with the arrival of the new calendar year, covering the final four months of its fiscal year, during which the benchmark advanced +16.9% as compared to the MSCI ACWI’s +4.7% gain. This was driven by better-than-expected macroeconomic data which prompted optimism around e-commerce and digital advertising growth against low expectations, while Artificial Intelligence provided a new growth outlet to many semiconductor companies. This period also saw extraordinary outperformance of large-cap companies, as measured by the Russell 1000 Technology Index, which delivered +22% while small-caps as measured by the Russell 2000 Technology Index fell 1.9%, both in sterling terms. Megacap technology stock performance has been even more pronounced, benefiting from a ‘flight to quality’ amid the collapse of SVB, money flowing from the financials and energy sectors and excitement about and desire for AI exposure.

With tech momentum continuing, management remain confident around the outlook for the company with manager Ben Rogoff commenting:

“While we expect the market to broaden, we cannot help but share the market’s excitement about the AI opportunity which – at present – is most easily accessed via mega-cap stocks primarily within the semiconductor and cloud computing subsectors.  After decades of unrealised hopes around artificial intelligence, we believe that generative AI is likely to prove the technology’s so-called ‘iPhone moment’, the new user interface that sparks mass adoption. Other AI models will come, compete, and possibly surpass ChatGPT but it represents the first “hands- on introduction to how powerful modern AI has got”. It has stunned consumers, investors, and companies alike; the risk and opportunity it poses to established market shares, consumer behaviour and existing profit pools has ignited a powerful wave of AI spending. Inevitably there will be technology casualties from AI disruption, while investors will have to navigate periods when narrative and fundamentals diverge. However, the “era of generative AI is just beginning” and our sector has front row seats for what is likely to be one of the most disruptive performances of our investment lifetimes.”

PCT – Roller-coaster year for Polar Capital Technology amid tech bull resurgence 

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