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.
Results
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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