Tuesday, 14 July 2020

Polar Cap Technology - Full Yr Results

The Covid-19 pandemic has buffeted the global economy in quite an extraordinary and unexpected way these past few months. Many sectors have been hit very hard - travel & leisure, cruise industry, oil & gas to name a few but the lockdown and social distancing means we all have to adapt to find new ways of doing things. Millions have been working from home, children are getting online lessons and there has been an increased demand for home entertainment. 
All this has been a big positive for the tech industry...and is likely to continue.

Polar Capital Technology was added to my portfolio in June 2018. The trust briefly left my portfolio at the end of last year when I needed additional funds for some of my 'green' acquisitions but was repurchased during the meltdown in March.

Launched in 1996, the trust has grown rapidly and now has assets under management of over £2.5bn. It is a global trust  however 70% of the holdings are listed in the US. That said, many of these US-listed companies such as Netflix, Microsoft, Apple and Alphabet (Google) are truly global. The trust has been managed by a team led by Ben Rogoff since 2006.

The trust has just over 100 holdings and the top 10 account for 41% of the portfolio. These tech companies are fundamentally transforming the way we live our lives in a similar way to the impact of the industrial revolution 200 years previously. Current largest holdings include all the usual suspects...Microsoft (10.0%), Apple (8.2%), Google (6.3%), Facebook (4.0%), Samsung (2.7%) and Amazon (2.7%).

I believe the long term growth prospects for the technology sector offer investors significant rewards. Yes, these tech stocks have done well since the market turmoil of 2008/09 - PCT share price up 578% over the past decade - and there is likely to be some volatility as we have seen earlier this year (and today down 5.9%) but I see no reason why the sectors ability to disrupt and grow should not continue.

Indeed, I have recently added Microsoft and Google as stand-alone additions to my green portfolio taking advantage of the dip in prices during the Covid sell-off.


The trust has today released results for the year to end April 2020 (link via Investegate). Net assets have increased by 18.6% compared to the benchmark World Technology index 18.1%. Over the same period, the FTSE All Share declined by -16.7%. The share price has moved from a discount last year to trade at a premium and therefore the shares have returned 31% over the year.

3 Yr Chart PCT v FTSE All Share
(click to enlarge)

Commenting on Covid, the manager says:

"COVID-19 represents one of those generational moments when normality is suspended. Usually, these are deeply personal moments when the passage of time is interrupted by news of serious illness or an unexpected development that changes everything. Once life restarts, for some it simply snaps back to its earlier state. But for many, the timeout allows them to recalibrate and focus on what really matters to them. Our sense is that COVID-19 will result in societal recalibration - permanent changes that persist long after the pandemic - many of which will seem obvious in the fullness of time. The success of work from home (WFH) together with challenges to mass transit systems posed by social distancing means that many of us are unlikely to work as we did previously. This may have a profound and lasting impact on demand for commercial property, coffee shops (as a 'third space'), business travel and even the role of cities. Rather than trying to move people at high speed in and out of business hubs (with HS2 expected to cost more than £106bn) perhaps infrastructure spending should be redirected to providing nationwide high-speed Internet. If we came to dominate the world because sapiens were the only animal able to assemble and cooperate flexibly in large numbers, then in a socially distanced world the case for universal internet access has never looked stronger.

In time, remote work could allow companies and people alike to relocate anywhere with a good Internet connection, akin to how containerisation eliminated the need for factories to operate near ports. Hard fought freedoms may be surrendered in order to contain future outbreaks with thermal cameras, quarantine and state-level surveillance becoming the norm. Myriad industries (travel, hospitality, retail, manufacturing, sport and fitness, communal worship) may need to be reimagined in order to comply with social distancing. The use of physical cash, how we greet friends and strangers and perhaps most importantly, our relationship with our planet all appear subject to change too. Perhaps the stark reality of COVID-19 will allow us to address issues seemingly impossible today, with the UK Prime Minister's own experience presaging a renewed focus on obesity and healthier living. We are also likely to see an acceleration in the trend of deglobalisation and reshoring because synchronised demand for critical items such as PPE and paracetamol, exposed frailties associated with global supply chains. Relying on India and China for 84% of the world's paracetamol now not only looks incredibly reckless but may embolden those who believe capitalism requires closer supervision".

...and concludes

"The current crisis has shown the modern world is built on technology. Trends we have witnessed and written about for many years have accelerated during the crisis, and many will remain at structurally higher levels once the crisis recedes. The self-induced nature of the downturn together with unprecedented fiscal stimulus that in the UK has seen 8.4m jobs furloughed has frustrated the 2008/9 'playbook' and leaves us hopeful that recovery may positively surprise us too. Our process and experienced team of nine dedicated investment professionals (including two new additions during the past year) remain well-positioned to assess and invest in this ongoing structural change, and we look forward to many more years of growth for the technology sector".

ESG and Climate

On a personal level, I was pleased to note that the trust has recently introduced a ESG scoring/analysis framework to assess holdings and challenge underperformers or avoid those companies with low ESG ratings. Global data centres are responsible for around 2% of total CO2 emissions however despite a three-fold increase in workload over the past 5 years, energy usage has remained flat due to the move to renewable forms of energy and greater efficiency. It is suggested that the move to cloud could reduce energy consumption by 87%.

The technology sector is uniquely positioned to provide the innovation and scale required to address the existential challenges posed by climate change.

The shares were repurchased in my SIPP in April using some of the remaining proceeds from the sale of my Vanguard Lifestrategy index fund. The price was £15.90 just missing the low point of sub £13 a couple of weeks earlier. The current price is just over £21 so a nice gain of 30% since repurchase.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

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