Polar Capital Technology (PCT) has rebounded strongly from a “challenging” year in which a Trump market rally turned sour and the launch of China’s DeepSeek threatened to eclipse US dominance in artificial intelligence. Despite this its fund managers say AI is the most “exciting” market they have ever seen.
Annual results today showed the investment trust’s net asset value rose just 3.1% in the year to 30 April, a subdued performance in volatile conditions after a 40.8% jump in the previous financial year.
Fund managers Ben Rogoff and Ali Unwin’s refusal to hold the full index weight in the US “Magnificent Seven” tech titans that have so far benefited the most from the boom in AI meant the trust trailed the 5.1% sterling return from the Dow Jones Global Technology benchmark.
This was lower than the 12% gain the index made in dollar terms and reflects the sharp devaluation of the US greenback against the pound and other currencies. The chair Catherine Cripps cautioned that a further decline in the dollar would cause a “headwind” to the trust.
Shareholders saw their stakes dip 1.2% over the 12-month period as wariness over high technology valuations and an AI bubble widened the discount, or gap, between the share price and the net asset value from 7.4% to an average 10.4%.
However, a 34.5% rebound in the past three months after Trump paused his controversial “reciprocal” tariffs means the company faces its five-year continuation vote at next month’s annual general meeting in a confident mood. Net assets have leaped by £900m to £4.7bn since the financial year-end.
A 537% total shareholder return over 10 years may have underperformed its benchmark’s 614% but is considerably more than investors could have got from virtually any other equity investment trust on the London Stock Exchange. As a result, the vote is highly likely to pass.
The managers are not without concerns, however. In a detailed report, they said they had reduced exposure to the Mag-7, having seen evidence of AI disruption starting to challenge the investment narratives at Alphabet and Apple with questions over the sustainability of their growth prospects. At the end of May, the Google parent and iPhone maker remained top 10 holdings at 3.5% and 3.8% of assets, but well below the 10.8% underweight allocated to AI chip maker Nvidia, its top position.
But their overall message was the need to stay invested, albeit with some derivative protection against the inevitable short-term market corrections.
They said the technology sector was expected to grow revenues by 11.7% this year on the back of strong AI infrastructure spending, with earnings forecast to rise by 18%, “the highest of any US sector on both metrics”.
A rapid recovery in valuations since April meant tech stocks now traded at 27.5 times forecast earnings, a higher multiple than both the five-year and 10-year averages, which they admitted suggested “limited near-term valuation upside”.
While acknowledging the dangers of a potential AI bubble, the erratic Trump administration, growing bond market unease at US debts and the possibility of a high-growth, high-inflation US economy leading investors to demand higher risk premia on assets, Rogoff and Unwin remained sanguine on long-term prospects.
“However, our overall outlook is positive because the AI story – albeit more complex – remains the most exciting market (and perhaps even macro) story we have come across, and it feels a high hurdle for investors to move structurally away from equities when the optionality embedded in AI is material in size and likely to play out over the next five years.”
Deutsche Numis analysts commented: “We rate the management team highly and believe that PCT offers a good way to gain diversified technology exposure, albeit we are somewhat wary of elevated valuations in the sector despite a positive outlook for earnings.”
