Polar Capital Technology Trust (PCT) announced its interim results for the six months to 31 October 2024. The company delivered a NAV total return of 11.7% compared to the 14.1% return for the benchmark sterling-adjusted Dow Jones World Technology Net Total Return Index. This largely reflected the remarkable performance of a select group of US mega-cap technology stocks which delivered strong positive returns in contrast with moribund returns in other geographies and market-cap tiers. Although the trust benefited from large absolute positions in these stocks, it remains structurally underweight mega-caps. Once again the trust delivered top-quartile performance versus its Lipper peer group for the fiscal half year and calendar year to date, reflecting the narrowness of the market and the challenge of outpacing a market cap-weighted benchmark firing on most cylinders.
The greatest detractor from performance during the period was the continued underweight exposure to mega-caps which significantly outperformed every other market-cap tier during the period. In addition, the average cash position of 3.1% and NDX put options cost 55bps and 10bps respectively. However, stock selection was strongly positive as PCT’s pivot to AI was rewarded across most geographies and market-cap tiers. The trust’s share price advanced by 6.3%, reflecting the 11.7% higher NAV, offset by the discount widening from -13.4% to -14.5% during the period. The company continues to monitor the discount, and bought back 19.34m shares (post-split) during the period and had 1,186,874,680 shares in issue as at 31 October 2024.
The board also undertook a three-yearly review of the base fee arrangements with the investment manager, Polar Capital, Following engagement the company confirmed an overall reduction in the base management fee. In addition, the complete removal of the performance fee was agreed. The revised arrangements will come into effect from 1 May 2025, the start of the next financial year.
Current fee arrangements:
The current base management fee is structured over three tiers:
Tier 1: 0.80% on NAV up to and including £2bn
Tier 2: 0.70% on NAV between £2bn and £3.5bn
Tier 3: 0.60% on NAV above £3.5bn
Performance fee: The performance fee participation rate is 10 per cent. of outperformance above the benchmark, subject to a cap on the amount which may be paid out in any one year of 1 per cent. of NAV.
New fee arrangements:
The new base management fee will be structured over two tiers, and the performance fee will be removed entirely:
Tier 1: 0.75% on NAV up to and including £2bn
Tier 2: 0.60% on NAV above £2bn
Performance fee: none
Discussing the outlook, managers Ben Rogoff & Alastair Unwin noted:
“Early in this new cycle, we remain firmly AI ‘maximalists,’ encouraged by scepticism and bubble fears that appear driven more by expectations of mean reversion than by a true understanding of AI’s potential. As long as scaling laws hold and budgets allow, AI capabilities will only continue to advance. As AI begins to more obviously substitute labour, its addressable market will expand far beyond IT spending alone. This should support a sustained, multi-year AI investment cycle that will benefit the technology sector as well as other industries, driving efficiency gains (through margin improvement), unlocking new revenue streams, and potentially enhancing valuations. Conversely, companies that fail to understand or adopt Generative AI may face significant challenges-or even existential threats to their business. For our part, we remain excited, inspired and optimistic about the AI era and the investment opportunities we believe it will create.”
PCT: AI drives double digit NAV return for Polar cap technology over H1
