Polar Cap Tech Tst - Half-year Report
10/12/2024 07:00
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RNS Number : 4125P Polar Capital Technology Trust PLC 10 December 2024
POLAR CAPITAL TECHNOLOGY TRUST PLC
UNAUDITED RESULTS ANNOUNCEMENT FOR THE SIX MONTHS TO 31 OCTOBER 2024
(Unaudited) (Audited)^ Movement %
As at 31 October 2024 As at 30 April
2024
Total net assets £4,179,544,000 £3,804,533,000 9.9
Net Asset Value (NAV) per ordinary share #~ 352.15p 315.41p 11.6
Price per ordinary share# 310.50p 292.00p 6.3
Benchmark 5,712.88 5,007.08 14.1
Dow Jones World Technology Index (total return, Sterling adjusted, with the
removal of relevant withholding taxes)
Discount of ordinary share price to NAV per ordinary share~ (11.8%) (7.4%)
Ordinary shares in issue #* 1,186,874,680 186,275,320 1,206,215,690 166,934,310 -1.6
Ordinary shares held in treasury #* 11.6
KEY DATA
For the six months to 31 October 2024
Local Currency Sterling Adjusted
% %
Benchmark (see above) 17.1 14.1
Other Indices over the period (total return)
FTSE World 11.0 7.9
FTSE All-share 1.8
S & P 500 composite 14.1 10.9
Nikkei 225 2.7 3.3
Eurostoxx 600 1.7 0.6
As at As at
Exchange rates 31 October 2024 30 April 2024
US$ to £ 1.2857 1.2522
Japanese Yen to £ 195.84 197.04
Euro to £ 1.1842 1.1711
No interim dividend has been declared for the period ended 31 October 2024,
nor were there for periods ended 31 October 2023 or 30 April 2024, and there
is no intention to declare a dividend for the year ending 30 April
2025.
^ The financial information for the six-month periods ended 31 October 2024
and 31 October 2023 have not been audited. The figures and financial
information above and in the following pages, for the year ended 30 April 2024
are an extract from the latest published Financial Statements and do not
constitute statutory accounts for that year.
# Prior year was rebased following the sub-division of Ordinary Shares of 25p
each into 10 new Ordinary Shares of 2.5p each, approved at the AGM held on 11
September 2024 and effective on 13 September 2024.
~See Alternative Performance Measure below.
* The issued share capital on 9 December 2024 (latest practicable date) was
1,373,150,000 ordinary shares of which 188,223,085 were held in
treasury.
References throughout this document to "the Company" or "the Trust" relate to
Polar Capital Technology Trust PLC while references to "the portfolio" relate
to the assets managed on behalf of the
Company.
For further information please contact:
Jumoke Kupoluyi, ACG - Company Secretary Ed Gascoigne-Pees
Polar Capital Technology Trust PLC Camarco
Tel: 020 7227 2700 Tel: 020 3757 4984
CHAIR'S STATEMENT
THE BOARD
As previously reported, Charlotta Ginman stepped down from the Board at the
AGM held in September following completion of her 9-year tenure. Following
Charlotta's departure and, as announced on 5 November 2024, having carried out
a search process, we have appointed a new independent non-executive Director
to your Board. Adiba Ighodaro was appointed with effect from 3 December 2024
and will stand for election by Shareholders at the AGM to be held in September
2025.
Adiba is currently an Independent non-executive director and member of the
Audit and Management Engagement Committees of ICG Enterprise Trust Plc, an
independent non-executive director, Chair of the Credit Committee and member
of the Risk Committee and the Nomination, Governance & Remuneration
Committee of Standard Chartered Bank Nigeria Ltd. She is also a non-executive
director of M-Kopa Holdings Ltd. Adiba has extensive experience in global
private markets from over 30 years of working in legal structuring,
development finance, private equity investment and fundraising. We greatly
look forward to working with Adiba and feel she will bring her relevant
experience to the Board.
Full biographical details of all Directors are available on the Company's
website. There have been no other changes to the membership of the Board in
the six months ended 31 October 2024.
MANAGEMENT FEES
Under the terms of the Investment Management Agreement, the Board is entitled
to undertake a three-yearly review of the base fee arrangements with the
Investment Manager, Polar Capital, and to negotiate a change when deemed
appropriate. In addition, the Management Engagement Committee on behalf of the
Board review the fees on an annual basis. The aim of the review is to ensure
that the fees continue to provide value for shareholders, remaining
competitive within the investment trust peer group, while also reflecting the
quality and experience of Polar Capital's specialist technology team and the
business infrastructure that supports them.
Following engagement with Polar Capital, I am pleased to confirm that we have
concluded our discussions and have agreed an overall reduction in the base
management fee. In addition, we have also agreed the complete removal of the
performance fee. 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. Further information is
provided in note 6 below as well as the Company Annual Report and Accounts for
the year ended 30 April 2024.
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
GEARING
The Company's fixed rate term loans (JPY 3.8bn and USD$36m) with ING Bank N.V.
were repaid on 30 September 2024.
The two loans were replaced with a single fixed rate term loan of 15bn JPY
from The Bank of Nova Scotia; this loan was in place as at the period end, 31
October 2024. The JPY loan has been fixed at an all-in rate of 2.106% pa and
is due to be repaid in September 2027 at which time the loan facility will be
reviewed and may be replaced. The loan represents c.2% of the Company's Net
Asset Value as at 31 October 2024.
SHARE SPLIT
During the financial year under review, Shareholders approved the sub-division
of existing Ordinary shares of 25 pence each into ten new shares of 2.5 pence
each (ten for one share split). Following approval, the New Ordinary Shares
were admitted to the Official List of the Financial Conduct Authority and to
trading on the London Stock Exchange's main market for listed securities on 13
September 2024. The Company's total Issued Share capital following the share
split is: 1,373,150,000.
SHARE BUY-BACKS
As described in the full year report and accounts for the year ending April
2024, the Board continually monitors the discount at which the Company's
ordinary shares trade in relation to the Company's underlying NAV. The Board
discusses the market factors giving rise to any discount or premium, the long
or short-term nature of those factors and the overall benefit to Shareholders
of any available actions. Whilst the Board does not have a formal discount
policy or absolute target discount level at which it buys back shares, it will
continue to exercise its discretion to buy back shares and is usually more
active in doing this in periods of elevated share price volatility with the
objective of reducing the share price volatility and adding a small uplift in
NAV per share.
In the six months to 31 October 2024, the Company has been continually active
in the market and has repurchased a total of 19,341,010 shares into treasury
representing 1.4% of the total issued capital. Since the period end to 9
December 2024, we have bought back a further 1,947,765 shares.
AUDITOR
KPMG LLP were re-appointed as the Company's external auditor at the AGM held
on 11 September 2024.
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors consider that the principal risks and uncertainties faced by the
Company for the remaining six months of the financial year, which could have a
material impact on performance, remain consistent with those outlined in the
Annual Report for the year ended 30 April 2024. A detailed explanation of the
Company's principal risks and uncertainties, and how they are managed through
mitigation and controls, can be found on pages 62 to 65 of the Annual Report
for the year ended 30 April 2024. The Company has a risk management framework
that provides a structured process for identifying, assessing and managing the
risks associated with the Company's business. The investment portfolio is
diversified by geography which mitigates risk but is focused on the technology
sector and has a high proportion of non-Sterling investments. Further detail
on the Company's performance and portfolio can be found in the Investment
Managers' Review.
RELATED PARTY TRANSACTIONS
In accordance with DTR 4.2.8R there have been no new related party
transactions during the six-month period to 31 October 2024 and therefore
nothing to report on any material effect by such transactions on the financial
position or performance of the Company during that period. There have
therefore been no changes in any related party transaction described in the
last Annual Report that could have a material effect on the financial position
or performance of the Company in the first six months of the current financial
year or to the date of this report.
GOING CONCERN
As detailed in the notes to the financial statements and in the Annual Report
for the year ended 30 April 2024, the Board continually monitors the financial
position of the Company and has considered for the six months ending 31
October 2024 a detailed assessment of the Company's ability to meet its
liabilities as they fall due. The review also included consideration of the
level of readily realisable investments and current cash and debt ratios of
the Company and the ability to repay the outstanding bank facility. Repayment
of the bank facility would equate to approximately 40% of the total cash and
cash equivalents readily available to the Company as at 31 October 2024.
In light of the results of these tests on the Company's cash balances and
liquidity position, the Directors consider that the Company has adequate
financial resources to enable it to continue in operational existence. Having
carried out the assessment, the Directors are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing the financial
results of the Company. The Directors have not identified any material
uncertainties or events that might cast significant doubt upon the Company's
ability to continue as a going concern.
The assets of the Company comprise mainly of securities that are readily
realisable and accordingly, the Company has adequate financial resources to
meet its liabilities as and when they fall due and to continue in operational
existence for the foreseeable future.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors of Polar Capital Technology Trust plc, all of whom are listed in
the Directors and Contacts Section, confirm to the best of their knowledge and
belief that:
· The condensed set of financial statements has been prepared in
accordance with UK-adopted International Accounting Standard 34, and gives a
true and fair view of the assets, liabilities, financial position and profit
or loss of the Company as at 31 October 2024;
The Interim Management Report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The Half Year Report for the six-month period to 31 October 2024 has not been
audited or reviewed by the Company's Auditor. The Half Year Report for the
six-month period to 31 October 2024 was approved by the Board on 9 December
2024.
On behalf of the Board
Catherine Cripps
Chair
INVESTMENT MANAGER'S REPORT
Market review
The fiscal half-year to 31 October 2024 saw global markets continue their
rebound from their October 2023 lows, the MSCI All Country World Index gaining
+7.8% in sterling terms during the period. Economic growth remained firm
despite significant geopolitical volatility, supported by a resilient consumer
despite a gradual softening in labour markets. In the US, GDP growth rebounded
to 3% and 2.8% in Q2 and Q3 2024 respectively, following a disappointing first
quarter when the economy could only grow by 1.6%. Stronger growth, with
inflation continuing to moderate, saw the case for a US 'soft landing' (where
inflation comes down without causing a recession) strengthen during the
period.
Equity market returns were driven by the US (S&P 500: +10.9%) and Asia
(MSCI All Country Asia ex Japan Index: +8.5%) with Europe (Eurostoxx 600:
+0.6%) and Japan (TOPIX: -0.1%) trailing. US large-cap stocks continued to
dominate with the Russell 1000 (large cap) Index +10.8% as compared to the
Russell 2000 (small cap) Index +9.0%. However, market breadth began to show
some improvement by period end, with advance-decline lines (a measure of
market breadth based on the number of advancing and declining stocks) for the
S&P 500, NASDAQ 100 and NYSE reaching all-time highs in September and
October. Chinese-related equities performed very strongly into the end of the
fiscal half year following announcements of significant government stimulus
measures to help achieve 5% GDP growth for the year and included a host of
measures to boost the struggling property market. The Shanghai Shenzhen CSI
300 Index rose +29% from 13 September, rebounding from a five-year low to a
one-year high by the end of the month, although around a fifth of the gains
were reversed in October.
Volatility trended higher during the period, marked by a pronounced spike in
August following weak US labour market data and significant yen strength after
the Bank of Japan (BoJ) hiked its policy rate by 0.25% and announced plans to
halve its purchases of Japanese government bonds. This prompted a sharp unwind
of the yen carry trade (where investors borrow 'cheaply' in yen - as Japanese
interest rates are lower - to buy other assets/currencies) and a market
correction. The magnitude of the correction was unusual: the VIX Index (a
measure of volatility) touched 60, its third highest level in recent history
after Covid (2020) and the global financial crisis (2008). However, developed
markets rebounded sharply on the back of renewed confidence in US economic
resilience and coordinated actions from Japan's government and central bank.
Strong equity market returns coincided with renewed progress on inflation,
especially after some stronger than hoped for readings early during the
calendar year. The 'core PCE' (Personal Consumption Expenditure) rate, which
is the Federal Reserve's (Fed) preferred measure and excludes volatile items
like food and energy, averaged 2.7% on a year-on-year basis during the fiscal
half-year period, trending down from 3.1% for the prior six months, and 4.3%
for the six months before that. The inflation picture continued to improve
globally, which changed the balance of risks for many central banks, including
the Fed. As a result, focus shifted from managing the risk of higher/sticky
inflation to supporting economic growth and the labour market which has
prompted many to shift into interest rate-cutting mode. Oil prices also fell
during the period, potentially underpinning a softer inflation outlook,
despite further escalation of political tensions in the Middle East as Israel
intensified its efforts against Hezbollah in Lebanon and Iran launched
ballistic missiles into Israel in response.
The labour market continued to cool during the period with the July jobs
report sending a recessionary warning signal by triggering the Sahm Rule (when
the three-month moving average unemployment rate increases 50 basis points
(bps(( 1 ))) from its lowest point during the previous 12 months). However,
the unemployment rate ticked lower in subsequent jobs reports while Treasury
yields fell and financial conditions loosened in anticipation of the start of
the Fed's interest rate-cutting cycle. This started with a -50bps cut at its
September meeting, which marked a near-term low as yields moved sharply higher
as Donald Trump's election prospects improved and concerns around the fiscal
deficit (whichever candidate prevailed) intensified. The rise in yields did
little to discourage equity markets, with the S&P 500's year-to-date (YTD)
return into the US presidential election the third highest on record at
c.+22%.
Technology review
The technology sector led equity markets higher during the fiscal half year as
the Dow Jones Global Technology Index returned +14.1% against the FTSE World
Index's +8.0%. Technology outperformance was driven by Artificial Intelligence
("AI") which continued to dominate both sector returns and the investment
narrative. While strong AI fundamentals were the underlying driver of this
outperformance, technology stocks also enjoyed some relative valuation
expansion. During the period, the S&P 500 Information Technology sector
saw its valuation premium to the S&P 500 Index expand to 1.37x from 1.28x.
Large-cap technology stocks continued to significantly outpace their small and
mid-cap peers as the Russell 1000 (large cap) Technology Index and Russell
2000 (small cap) Technology Index delivered returns of +16.2% and +3.3%
respectively. Similarly, the market cap-weighted NASDAQ 100 Index gained
+11.4% while the equal-weighted NASDAQ 100 (the same stocks held at equal
weights) returned just +3.2%. These divergences reflected remarkable returns
enjoyed by some of the largest index constituents including NVIDIA (+49%),
Apple (+29%), Meta (+28%) and Broadcom (+27%), all of which benefited from
AI-related strength during the period. The absence of mega-cap 'AI-winners'
saw the Dow Jones World ex-US Technology sector (W2TEC) continue to
underperform meaningfully, rising just +4.7%.
There was also considerable variance in subsector performance: the Bloomberg
Americas Software Index and the NASDAQ Internet Index returning +8.2% and +11%
respectively while the Philadelphia Semiconductor Index (SOX) increased just
+3.4% and the NYSE Arca Computer Hardware Index fell by -4.1%.
The surprising underperformance of semiconductor stocks given the progress
made by AI reflected a significantly more challenging period for non-AI end
markets. TSMC (+29%) - the world's leading semiconductor foundry - set the
scene for this bifurcation in April when it outlined a 50% AI compound annual
growth rate (CAGR) over the next five years while reducing its expectations
for overall semiconductor industry growth (ex-memory) to just +10% y/y. This
proved prescient, helping TSMC deliver strong results, increased capital
expenditure (capex) and higher pricing amid "strong structural demand from
AI".
This was heavily influenced by strength at its second largest customer, NVIDIA
(+49%) which delivered an outstanding Q1 in May with revenues +262% y/y. While
reported delays to its next-generation Blackwell chips created some stock
price turbulence later in the period, CEO Jensen Huang reassured investors
that the chip design issues had been solved and would result in only a
three-month delay. Any outstanding concerns were laid to rest in August, when
NVIDIA once again exceeded market expectations and announced it expected
"several billion dollars of Blackwell revenue" towards the end of 2024.
AI chip rival Broadcom (+28%) also enjoyed strong demand in its custom silicon
business as hyperscaler(( 2 )) customers continued to supplement graphics
processing units (GPUs) with their own ASIC (application-specific integrated
circuits) designs. Broadcom's networking business also performed well as key
customers such as Arista Networks (+46%) benefited from AI-related data centre
spending. In contrast, Advance Micro Devices (AMD; -11%) fared less well
despite making good progress in its own AI chips. This reflected cyclical
headwinds that weighed on its non-AI revenues as well as concerns that
NVIDIA's expansion into full-stack AI systems might frustrate AMD competitive
efforts. This view was seemingly supported by AMD's acquisition of server
builder ZT Systems for $4.9bn in August.
Things were considerably worse at long-time AMD rival Intel* (-31%) which
reduced guidance, suspended its dividend, cut capital spending and booked a
record loss during the period. Intel's* travails largely reflected the
challenge of competing with TSMC and the shift to AI-centric compute. However,
Intel* - like many of its semiconductor peers - also struggled with cyclical
headwinds that impacted demand in many non-AI markets including PC, smartphone
and electric vehicle (EV)/automotives. This weakness frustrated earlier hopes
of a cyclical recovery, and weighed on non-AI exposed chipmakers, including
memory suppliers such as Micron Technology (-14%).
Strong AI-related demand for leading-edge manufacturing allowed semiconductor
equipment suppliers such as KLA (-6%) to shrug off non-AI end market weakness.
However, equipment providers reversed their earlier gains following
foundry-related capex cuts at both Intel* and Samsung Electronics**.
Furthermore, weak Q3 orders at ASML Holding (-26%) pointed to a potentially
permanent change in leading-edge market dynamics. This, together with concerns
about potentially tighter export controls to China in the event of a Trump
victory, weighed heavily on the group.
Company fortunes were also bifurcated within the internet/cloud subsector,
reflecting different AI starting points and significantly upward revisions to
capex plans. Meta's renaissance continued as it posted strong results that
were more than sufficient to allay any concerns about increased AI-driven
capex. The company showed strong signs of AI progress across its platform with
AI-driven feed improvements said to have increased time spent on Facebook and
Instagram by 8% and 6% respectively. The company expects MetaAI to become the
most used AI assistant by the end of this year, while downloads of its Llama
LLMs (large language models) are approaching 350 million, a more than 10-fold
increase from a year ago. By contrast, Alphabet (+2%) underperformed, despite
core search resilience and Google Cloud Platform (GCP) exceeding expectations.
This reflected disappointment at YouTube, higher capex spending to support AI
investments and a legal ruling in August that found its agreement with Apple
(to be the default search engine on iPhones) in violation of antitrust laws.
Likewise, Amazon (+4%) failed to fully capture the AI zeitgeist with its
retail and cloud (Amazon Web Services, or AWS) businesses rarely in sync,
while operating margins proved highly variable. While reacceleration at AWS
during the period was encouraging, generative AI (GenAI(( 3 ))) - reported to
be a multi-billion run rate business growing triple digits - remains a
relatively small contributor today.
Instead, upside in AI-driven cloud growth was better captured at Oracle (+44%)
which prior to GenAI had struggled with its own cloud (Oracle Cloud
Infrastructure, or OCI) efforts. However, strong AI-related demand, helped by
expanded relationships with both NVIDIA and Microsoft, saw OCI backlog reach
$99bn (+53% y/y). This emboldened Oracle management to raise its FY26 revenue
target as well as initiate an ambitious FY29 revenue target of $104bn.
Microsoft (+2%) also captured cloud share during the period, with AI
contributing strongly to Azure growth. The company expects its AI business to
exceed a $10bn annual revenue run rate next quarter and 70% of the Fortune 500
companies are said to be using M365 Copilot products. However, these gains did
not translate into meaningful positive earnings revisions, in part due to
higher capital spending necessary to meet AI demand, as well as higher 'other
income' losses associated with its OpenAI investment.
Within the broader internet/cloud subsector, streaming entertainment winners
Netflix (+34%) and Spotify (+34%) performed well as both flexed their
leadership positions. Netflix subscriber numbers exceeded expectations, helped
by an earlier crackdown on password sharing, price increases and its
ad-supported tier. Spotify also delivered better than expected subscriber
growth, with ARPU (average revenue per user) accelerating as it also raised
pricing. The Trade Desk (+41%) also outperformed due to strength in the
Connected TV advertising market and partnerships with Netflix, Disney and Roku
beginning to bear fruit.
The software sector performed well during the period, although returns were
heavily influenced by strong performances from several large-cap companies
able to demonstrate AI monetisation. In addition to Oracle, these included
ServiceNow (+31%) which delivered robust results, further disclosure around AI
product contribution and gave commentary around a 30% realised pricing uplift
for its AI products. Likewise, SAP (+25%) produced solid results, helped by
improved execution on its long-anticipated cloud model transition and strong
cost controls supporting positive earnings revisions. However, most software
companies fared less well as AI spending 'crowded out' traditional projects
and caused some enterprises to adopt a more considered investment approach
given the potential risk posed by AI to the existing software stack. While
Adobe (+0%) and Salesforce (+5%) both underperformed, consumption/data-related
software companies such as MongoDB (-28%) and Snowflake (-28%) had to contend
with further spend/usage optimisation, increased competition and AI
uncertainty.
Against this backdrop, cybersecurity proved a relative bright spot despite the
CrowdStrike** (+1%) IT outage in July when a faulty software update caused 8.5
million systems to crash resulting in the largest outage ever with financial
damage estimated at $10bn. Regardless, cyber budgets remained robust,
reflecting an increasingly sophisticated and evolving threat landscape,
further intensified by AI. CyberArk Software (+12%) benefited from heightened
risk (and some high profile breaches) of identity-related attacks. Palo Alto
Networks (+20%) was perceived as a potential share gainer from the fallout of
the CrowdStrike** debacle.
AI also provided tailwinds for both Apple (+29%) and Tesla (+33%) despite
challenging smartphone and EV end markets. For Apple, results were uninspiring
but overshadowed by excitement about a potential AI-driven iPhone upgrade
cycle following the release of Apple Intelligence, its suite of AI features
integrated into iOS 18 announced in June. Despite challenging macroeconomic
conditions, Tesla met vehicle delivery expectations, albeit with variable
automotive gross margins. However, investor sentiment was buoyed by AI-driven
progress in its full self-driving (FSD) solution despite its robotaxi event in
October failing to live up to elevated expectations.
The IPO market remained extremely quiet during the period, with Morgan Stanley
unable to find any historical examples of higher public market technology
valuations and lower technology IPO volume than we are seeing today. At
today's valuation levels, IPO activity has typically been 50-60% higher.
Global technology M&A run rate for deals >$50m remains subdued at a
c$270bn run rate in 2024, well down from the $450-500bn seen in 2020-22.
Private market funding activity has accelerated this year but is
unsurprisingly being driven by AI, with AI companies making up 44% of new
North American Unicorns (valued >$1bn) YTD. At the larger end, frontier
model builders have demanded ever-larger sums to finance the compute, data and
power required to pursue scaling laws: OpenAI raised $6.6bn equity at a $157bn
valuation and xAI raised a record 'Series B' round of $6bn, to take the total
cumulatively raised by the seven largest private GenAI companies to c$35bn.
Portfolio performance
The Trust underperformed its benchmark during the period, with the net asset
value (NAV) per share increasing by +11.7% during the first half of the
financial year versus +14.1% for the 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 our 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 our continued
underweight exposure to mega-caps which significantly outperformed every other
market-cap tier during the period. In addition, our average cash position of
3.1% and NDX (NASDAQ 100) put options(( 4 )) cost 55bps and 10bps
respectively. However, stock selection was strongly positive as our 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. We continue to
monitor the discount, and the Trust bought back 19.34 million shares
(post-split) during the period and had 1,186,874,680 shares in issue as at 31
October 2024.
At the stock level, our large underweight position in Apple (+29%) proved the
most significant detractor to relative performance (-104bps) as excitement
about a potential AI-driven iPhone refresh cycle overshadowed moribund growth.
Our NVIDIA (+49%) holding, which averaged 11.2% of NAV, delivered a remarkable
+481bps in absolute performance terms during the half year. However, this
outsized position was still underweight relative to our benchmark, resulting
in a -35bps drag in terms of relative performance. In addition, NVIDIA
perceived dominance of the GPU market weighed on our AMD position, despite it
guiding AI GPU sales to exceed $5bn in 2024, up from forecasts of more than
$2bn at the start of the year.
Relative performance was also negatively impacted by pronounced weakness in
semiconductor equipment stocks, one of our preferred ways of gaining exposure
to leading edge (AI) semiconductors. Uncertainty around high bandwidth memory
(HBM) spending, capex cuts at Intel* and Samsung Electronics** and an
unexpected reset at ASML weighed on our overweight KLA (-6%), BE Semiconductor
(-23%) and ASM International (-15%) positions. Although we were modestly
positioned in non-AI related semiconductor companies, cyclical headwinds and a
'crowding out' of traditional spending negatively impacted several of our
positions including Micron (-14%) and Teradyne** (-11%). These headwinds,
together with weak demand in China, also negatively impacted automation
stocks, and our last remaining robotics-related holding, Harmonic Drive
Systems (-29%).
The Trust was also negatively impacted by several growth software stocks where
higher interest rates, a choppy demand backdrop and in some cases poor
execution more than offset AI-related positives, resulting in underperformance
at Confluent (-9%), Elastic (-24%) and JFrog (-29%). Relative performance was
also negatively impacted by our overweight position in CrowdStrike** (-1%)
following the summer IT outage caused by its faulty software update. As ever,
there were a few genuine disappointments during the period such as Hamamatsu
Photonics and ASM Pacific, although these were contained to the portfolio
tail.
In terms of positives, the most important performance contribution during the
half year was our earlier decision to pivot the portfolio significantly
towards AI. This involved the introduction of an 'AI lens' to our investment
process to help assess every portfolio holding and potential holding in terms
of its positioning in an AI-first world. As a result, the Trust benefited from
positive stock selection and an overweight exposure to the AI theme that again
dominated returns and investment discourse during the period.
Our AI-first approach has emboldened us to rebuild or hold larger positions in
AI-winners such as NVIDIA, while providing us with a framework to avoid
companies and themes we perceive to be on the 'wrong side' of likely AI
progress. During the period, this was evident in strong performances in
several outsized AI-related holdings including Advantest (+85%) which
significantly exceeded consensus expectations, driven by strength in its
system-on-chip (SoC) testers used for AI chips as well as robust sales of
high-bandwidth memory (HBM) testers. Likewise, we significantly increased our
position in long-time holding TSMC (+28%) given its dominant position in
leading-edge chip manufacturing. The company delivered strong results during
the period, with evidence of its pricing power becoming more apparent. We also
increased our position in Meta (+28%) which we consider the best positioned of
the internet giants with 'many ways to win' in an AI-centric world.
The portfolio also benefited from the strong performance of Arista Networks
(+46%), another long-term holding that we have scaled up given its exposure to
hyperscale customers and their datacentre / AI-related spending. Demand for
faster networking and increased optical speeds also helped Nitto Boseki
(+33%), a Japanese supplier of optical-grade glass fibre critical in higher
speed transmission. Positive contributions were also delivered by smaller
networking-related positions including Fabrinet (+35%), Coherent (+64%) and
Celestica (+32%). After avoiding networking stocks for almost two decades, we
are actively looking for more opportunities to gain exposure in an AI-centric
world as data centre spending, power shortages and inference workload needs
could lead to a revival of networking fortunes.
Our AI lens further aided performance by helping us avoid or reduce exposure
to companies having to contend with AI-related headwinds. One of the best
examples of this was Samsung Electronics** (-28%) where we were materially
underweight (and exited during the half year). While the company remains a
critical memory supplier, it has struggled with yields in HBM, in contrast to
local rival SK Hynix. Our AI lens also helped us avoid Intel* (-30%) which so
far appears to be the highest profile mega-cap casualty of an AI-centric
compute world.
Our relative performance further benefited from our underweight position in
Alphabet (+2%) reflecting concerns that the company might yet be a net loser
from AI with its dominant position in search and/or search industry economics
potentially at risk from AI-based alternatives from OpenAI, Perplexity and
others. Finally, our somewhat jaundiced view of the listed software sector
(informed by AI-related concerns) benefited relative performance via
underweight or zero holdings in Intuit, Workday and Microsoft.
During the half year, the portfolio also benefited from a number of
stock-specific successes including Spotify (+34%), The Trade Desk (+41%) and
Tesla (+33%). However, the most pleasing of these has been Axon Enterprise
(+31%), a stock we first bought in 2014.
During the period, Axon Enterprise - maker of Tasers and body cameras -
delivered strong results across all product lines. However, this was
overshadowed by the introduction of its AI powered report writing software
Draft One, reported to be able to auto-draft c80% of a police report in just
six minutes, based on audio content captured on body cameras. Not only did
this directly benefit portfolio performance (by c25bps) but we believe it
represents an early glimpse and important waypoint into the innovation and
productivity gains we expect to become commonplace in the AI era.
Portfolio activity
We continue to be active in the portfolio to maintain significant AI exposure
via stocks which sit on the right side of the AI trade. The AI technology
stack and supply chain are evolving very quickly as the annual product cadence
of semiconductor chips brings opportunities as well as challenges. Against
this backdrop we have tried to run winners, reduce exposure to also-rans and
remain nimble given the breakneck pace of technological improvement and the
twists and turns this brings.
We have been positively surprised by the pace of AI adoption at some early
beneficiaries in subsectors adjacent to traditional core technology and added
small positions in some of the most promising, including RELX on the data side
and Eaton for exposure to the growing power demands of AI compute. The AI
power theme is a new area for us and a good example of how our AI-first
approach should inform us of where the puck is headed.
We continued to dial down our software exposure as we remain sceptical that
many existing packaged application software vendors will prove good conduits
for AI adoption as the technology continues to advance. We exited our
remaining positions in Intuit, Salesforce, Workday and Adobe during the period
and added small positions in Palantir Technologies and Samsara. We also see
significant uncertainty around the nature and durability of infrastructure
software in an AI-first world and exited our small position in Confluent.
We reduced exposure to smartphone, auto industrial and other more mature
markets which showed limited signs of bottoming despite occasional green
shoots. In addition, higher fiscal deficits, together with the prospect of a
Trump presidency, resulted in considerable policy uncertainty (including risk
to Inflation Reduction Act funding). However, the Trust was only directly
impacted via its holding in First Solar having previously exited its other
clean energy holdings.
The Trust's positioning has not changed significantly in recent weeks, with
the portfolio still materially exposed to GenAI enablers and beneficiaries.
However, we made some portfolio adjustments coming into the US election. We
became less positive on the semiconductor production equipment (SPE) sector,
reducing exposure and fully exiting ASML Holding, as tighter US/China
technology export restrictions and manufacturing challenges at Intel* and
Samsung Electronics** (both lost significant market share) continue to weigh
on sentiment and the trajectory of wafer manufacturing equipment growth next
year. In addition, we reduced smartphone exposure on mixed data points
(especially relating to iPhone 16 demand), including an exit of our
underweight Qualcomm* position, which also reflected some concern about
potential future M&A interest in Intel*.
Market concentration
For several years we have reminded our shareholders of the concentration risk
both within the Trust and the market cap-weighted index around which we
construct the portfolio. After another period of pronounced large-cap
outperformance, concentration risk remains elevated. At the half year, our
three largest holdings - NVIDIA, Microsoft and Meta - represented c27% and
c33% of our NAV and benchmark respectively, while our top five holdings (which
include Apple and TSMC) represent c37% and c51% of our NAV and benchmark
respectively.
As a large team with a growth-centric investment approach, we would welcome
the opportunity to move materially underweight positions in the largest index
constituents should we become concerned about their growth prospects, their
positioning in an AI-first world or if we believe there are more attractive
risk/reward profiles elsewhere. That said, large-cap returns continue to
dominate small-cap returns and the so-called Magnificent Seven(( 5 )) (Mag7)
have accounted for nearly half the S&P 500's capital appreciation during
the calendar year - a further reminder of the opportunity cost associated with
a premature move away from unique assets, many of which capture the zeitgeist
of this technology cycle.
Index concentration does not appear to be driven entirely by ebullient
valuations; the Mag7 explain both c30% of S&P 500 market cap and, for
2025, consensus has $2.32trn as net income for the S&P 500, 30% of which
is expected to come from the Mag 7. Back in 2019, it was $1.3trn in net
income, 13% of which came from the Mag 7, according to Bank of America.
Likewise, according to Bloomberg, the 'Magnificent Seven Index' trades at 29x
2025 P/E(( 6 )) ratio, which does not seem excessive for estimated c18%
earnings growth CAGR.
The past six months support our earlier view that AI plays well into mega-caps
given their significant scale advantages. However, while the Trust is able to
hold up to a full benchmark weight subject to a maximum limit of 15%, we still
find it difficult to argue for holding much more than 10% in any individual
stock as we struggle with the idea that we are reducing risk by making the
portfolio ever more concentrated. Our intention remains to construct a
diversified portfolio comprising the best of what the benchmark has to offer,
plus a selection of growth technology companies which investors may lack the
resources or expertise to discover, analyse and monitor for themselves. We
continue to believe that a diversified portfolio of growth stocks and themes
capable of outperformance and constructed to withstand investment setbacks
will deliver superior returns over the medium to long term, particularly on a
risk-adjusted basis.
Market outlook
The US equity market and the dollar responded positively to Donald Trump's
decisive presidential election victory and the likely Republican control of
both the Senate and House of Representatives, as markets welcomed a
pro-business, anti-regulatory agenda expected to support corporate investment
and capital deployment. However, concerns remain around tariffs, higher fiscal
deficits and reduced immigration tightening the labour supply. At a time of
above-average valuations and significant geopolitical uncertainty, these
factors could drive higher inflation, pushing up yields and tightening
financial conditions, potentially slowing the economy.
A new round of tariffs on China would likely be inflationary. If the full 60%
tariff on Chinese imports went into effect, this would likely boost US core
PCE by 0.3-0.4%, while a 10% 'across the board' tariff might add around +1% to
inflation, according to Goldman Sachs. Indeed, the uncertainty around the
scope and size of tariffs may well tighten financial conditions anyway, just
as it did in 2018-19, which could weigh on capital investment and valuation
multiples.
Growing deficits and debt burdens are another concern. Extending the 2017 tax
cuts would leave the total and primary deficit at 6.4% and 3.1% of GDP in
FY24, at uncomfortably high levels given that US debt-to-GDP is roughly 100%
and could reach 130% within a decade. While this may support higher nominal
growth near term, the risk of a rebound in inflation as well as the lurking
threat of debt markets being unwilling to finance such fiscal largesse at
prevailing rates could jeopardise the path of future interest rate cuts.
Trump is the most prominent example of voters voting against incumbent
regimes, with every governing party facing an election in a developed country
this year losing vote share, including Harris, Sunak, Macron and Modi.
However, there is no apparent public appetite for fiscal conservatism and
public debt is set to rise above $100trn in 2024, or about 93% of global GDP,
and is projected to reach 100% of global GDP by 2030, 10 points higher than in
2019. There are significant structural drivers of the growing public debt
burden, including the costs of an aging population, increasing healthcare and
climate adaptation costs, and a step up in defence and energy security
spending due to growing geopolitical tensions. While not necessarily a problem
for the market or the economy in the near term, rising debt-to-GDP should lead
to higher interest rates which could crowd out private investment and
constrain central banks' freedom of manoeuvre.
Another potential challenge comes in the form of above average valuations,
with the S&P 500 forward P/E ratio at 22.2x, ahead of the five-year
(19.6x) and 10-year (19.1x) averages, a decade during which US 10-year
Treasuries typically yielded less than 3%. Earnings forecasts may also prove
optimistic, with consensus earnings growth calling for 9.4% and 14.8% earnings
per share growth in 2024 and 2025 respectively. However, valuation needs to be
seen in the context of fundamentals with a historically low interest rate
environment, high levels of profitability and high returns on equity.
Likewise, US market concentration - close to its highest level in a century -
poses a potential risk to future returns. Today, the 10 largest companies make
up 36% of the S&P 500 and trade at a forward P/E ratio of 31x, well above
the remaining 490 stocks at 19x. While history suggests it is very difficult
to maintain high levels of sales growth at high profit margins for extended
periods of time, we have consistently argued this concentration (and
associated returns and premium valuations) reflects the economic reality of
the digital era where 'winners take most'. These winners - mostly technology
companies - have enjoyed remarkable network effects, near-zero marginal cost
of distribution and customer (or user) bases in the billions. The advent of AI
could serve as a catalyst for non-technology sectors to take on more
technology-like characteristics and support 'supernormal' future profit growth
more broadly.
We also believe AI has the potential to significantly improve labour
productivity, which would boost economic growth and corporate earnings while
constraining inflation, making valuation concerns something of a moot point.
This might already be happening, with US productivity above 2% on a
quarter-on-quarter annualised basis and running 3.5% above its pre-Covid
(2015-19) trendline, according to Piper Sandler. AI is being adopted
significantly faster than prior general purpose technologies with 40% of
Americans having used AI within two years of ChatGPT's launch versus only 20%
of Americans having used the internet within two years of launch. We are
optimistic on the potential for AI to accelerate economic growth.
We are also mindful of the fact that strong equity market returns,
particularly when they coincide with low realised volatility, often beget
further strength. While instinctively it may feel that this is 'as good as it
gets', history suggests that similar periods of strong returns and low
volatility (1995, 1997) were followed by further strength (1996-98). While
past performance is not necessarily a guide to future returns, a low
volatility rally does not necessarily presage future market volatility or poor
returns, nor does the duration or magnitude of the current bull market.
According to Canaccord, the median bull market gain since 1957 (defined as a
20%+ gain off a low) has been nearly 80% and lasted 661 days, versus a c63%
gain over 517 days for the current run through the end of October 2024.
Finally, we are encouraged by the fact that cyclical S&P 500 sectors
(consumer discretionary, financials, industrials and IT) all closed at record
highs following the US election result; similar cyclical breakouts have
heralded positive returns for the S&P 500 over the next 12 months 86% of
the time.
Our view is that while a new US regime necessarily involves policy
uncertainty, we remain hopeful that these are unlikely to derail the economy
or challenge the favourable AI investment backdrop. For now, the US economy
remains robust with annualised real (gross domestic product (GDP) growth at
c2.5-3% and core PCE at c2.5%, which should be a supportive backdrop for risk
assets. The stubborn 'last mile' to reach the 2% inflation target appears to
be due to lagged catch-up inflation in areas such as housing, healthcare and
car insurance, which have taken longer to respond to the increase in market
rates or input costs but should continue to normalise or be ameliorated via
productivity improvements. Measures of wage inflation also appear benign,
including the US Employment Cost Index (ECI) which rose +0.8% in Q3, the
lowest increase since 2Q21. Trump's policy priorities around tariffs and tax
cuts will likely be somewhat inflationary, but we assume his sensitivity to
market performance remains a curb on the most extreme outcomes.
We also expect the Fed to adjust policy should the labour market weaken
significantly ("We do not seek or welcome further cooling in labour market
conditions"), but may pause ahead of potentially more stimulative US policy
and the prospect of (inflationary) import tariffs. Indeed, the terminal rate
(the anticipated bottom of the current Fed cutting cycle) has increased from
c275bps following the 50bps first cut to c350bps prior to the election, and
may increase further with a new US policy agenda. Treasury yields and real
interest rates have already bounced significantly from mid-September lows
(ironically when the Fed began their current cutting cycle) and equity markets
have digested the sharp move higher with apparent ease: the S&P 500
returned +3% on an c80bps move up in 10-year bond yields, the magnitude and
speed of which would normally cause a decline in equity prices.
The market has taken Trump's election and the Republican clean sweep in its
stride, with the expectation of lower taxes and a deregulatory agenda
provoking hitherto elusive 'animal spirits'. We may be moving into a new phase
for the economy (and for markets), with higher nominal economic growth, higher
real rates, higher fiscal deficits, the rebuilding of term premia and somewhat
higher inflation. Against this backdrop, equities can still deliver strong
positive returns, but the conditions also look more conducive to a potential
regime change in terms of market leadership. We have written before about the
obstacles for market leadership changes without significant changes in the
structure of the economy or the market, but with new governments across the
world spending aggressively and the rapid proliferation of the next general
purpose technology in the form of AI, the probability of a regime shift
appears to be increasing.
Technology outlook
According to Gartner, AI annual spending is estimated to reach $1.5trn this
year, rising to $2.4trn by 2028. Blackstone's CEO Stephen Schwarzman has
spoken about the $1trn required over the next five years to build new data
centres in the US, and another $1trn outside the US. Hyperscalers clearly
concur, backing their AI hyperbole with head-turning capex budgets that in
aggregate should exceed $300bn next year, +25% y/y and a near-doubling from
2023 levels.
While some investors are concerned about the return on investment associated
with such rapid growth (and remarkable absolute dollar numbers), these are
well-funded, high-ROIC (return on invested capital) businesses with billions
of users. As such, we take confidence in their clear excitement and
willingness to invest in AI at scale. The early indications regarding the
return on the increased spend are positive. Since the end of 2022 (ChatGPT
launched November 2022), aggregate hyperscaler capex has risen by $93bn while
their aggregate cloud revenue backlog has increased by $184bn, according to
Jefferies. Even more remarkably, OpenAI recently revealed it expects sales to
increase from $3.7bn this year to $11.6bn in 2025.
This growth trajectory reflects consumer AI adoption that has been fast and
furious. A Wharton study on 800 US enterprises found weekly AI usage among
business leaders surged from 37% to 72%; Perplexity - an AI-powered Answer
Engine and potential Google disruptor - disclosed it is now serving 100
million search queries a week, equivalent to c400 million per month, up from
250 million monthly queries in July. Likewise, OpenAI weekly active users
jumped from 200 million in August to 250 million in September.
Enterprises have also embraced AI with enthusiasm, with use-cases already
extending well beyond software copilots. Klarna's* high-profile endorsement of
AI in early 2024 was an important moment when the company announced that AI
had enabled it to reduce headcount from 5,000 to 3,800 with annual savings of
$40m pa. More recently the company disclosed it had used internally developed
AI tools to replace both Salesforce* and Workday*. Walmart* recently announced
it had used GenAI to create or improve over 850 million pieces of data in its
product catalogue, work that would have required "nearly 100 times the current
headcount to complete in the same amount of time". Amazon CEO Andy Jassy
echoed this when he discussed how using GenAI to help with Java software
upgrades had saved the company equivalent to 4,500 developer-years of work and
delivered $260m in annualised efficiency gains. With gains like this
available, it is no surprise that generative AI share of IT budgets (c3%
today) is expected to triple over the next three years.
Beyond the implications for productivity gains and structurally higher
corporate margins, the application of AI on internal operations opens the
aperture on the AI opportunity. Today c$5trn is spent on IT, as compared to
c$40trn on the wages of knowledge workers. Should AI begin to substitute
rather than augment labour, the total addressable market (TAM) for AI could
expand meaningfully. Returning to the Klarna* example, the contact centre
software market is today estimated to be $23bn to support 17 million human
agents. However, as AI begins to replace humans, the TAM could exceed $500bn
considering the fully loaded cost of an agent is likely $30-40k pa.
The key to unlocking this much larger opportunity (and a key point on the
journey to artificial general intelligence, or AGI) rests on continued AI
model and silicon improvement. To this end, recent LLM releases from Meta
(Llama-3) and Anthropic (Claude 3.5) suggest that all-important scaling laws
continue to hold. However, the release of OpenAI's o1 model in September was a
more important moment for AI as an advanced implementation of
'chain-of-thought' reasoning. This enables the model to perform human-like
multi-step reasoning; by breaking down complex tasks into manageable steps
('thinking' about the question), o1 significantly outperforms GPT-4o on most
reasoning-heavy tasks and exceeds human PhD-level performance on a benchmark
of physics, biology and chemistry problems. According to Sequoia, the o1 model
has "opened up an entire new plane for scaling compute" - the more inference
time compute given to the model, the better it reasons. Reasoning is a
necessary precondition for agentic AI, widely considered to be the next
iteration of AI, where systems have agency to autonomously plan, make
decisions and execute tasks with minimal human intervention.
The race to agentic, and in time AGI, is on with expectations now anchored
around a 2030 rather than a 2050 timeline. Hyperscalers are investing
aggressively against this opportunity with Mark Zuckerberg warning he would
"rather risk building capacity before it is needed, rather than too late" even
if the amount of compute needed to train the next-generation (Llama 4)
foundation model is c10x more than that used to train Llama 3. Sundar Pichai,
CEO of Alphabet, has also expressed how "the risk of under-investing is
dramatically greater than the risk of over-investing for us". Little wonder
then that NVIDIA CEO Jensen Huang has said the next generation Blackwell chip
is seeing "insane" demand.
Strength in cloud capex and data centre investments has led Gartner to raise
its IT budget forecast for 2025, projecting spending to reach $5.7trn - a 9.5%
year-over-year increase, the highest annual growth rate since 2011. This is
anticipated to follow 7.2% growth this year, marking the strongest
back-to-back increase in annual IT spending expected so far this century.
While some might argue this surge is suggestive of a 'bubble,' we see elevated
spending supporting our view that GenAI represents the next general-purpose
technology (GPT), requiring substantial new infrastructure.
Notably, the accelerating growth predicted for this year and next resembles
the early years of the internet, the last major GPT, when ICT (information and
communication technology) spending grew 6.7% in 1994 and 11.8% in 1995. Over
the following five years (1995-2000), annual IT spending growth averaged 7.7%,
more than twice that of global GDP (c3.4%). While the internet boom ultimately
ended in a bust, it was preceded by seven years of elevated IT spending,
during which the technology sector's forward P/E ratio grew to more than twice
the market multiple. By contrast, the current AI cycle is just two years old,
while the technology sector's relative P/E today (c1.3x) is well below dot.com
bubble levels.
Despite this, investors should be prepared for elevated volatility and bouts
of AI-related risk aversion. This year, these have been triggered by concerns
around the durability of AI infrastructure spending and the Blackwell chip
delay. As we have previously stated, early stages of new technology cycles are
often punctuated by intense periods of increased volatility. Interestingly,
between 1995 and 1998 - the internet years prior to the dot.com 'melt up' -
there were nine NASDAQ Index corrections of -10% or more, seven of which were
drawdowns of -15% or greater. However, during this volatile period, the Index
rose by c350%. While history is an imperfect guide, investors should
anticipate future volatility even if - as we have seen during the half year -
AI-related news flow remains overwhelmingly positive.
Technology risks
Our significant exposure to AI means any setbacks to the AI narrative could be
magnified in the portfolio. These may include a slowdown in the pace of AI
model improvement (including a tapering off of the 'scaling laws' observed
thus far), production challenges presented by the rapid development cadence of
each generation of leading edge semiconductors (as we saw with NVIDIA's
Blackwell delay), and other bottlenecks in scaling AI such as sourcing
sufficient power for data centres. Disappointing AI adoption (undermining
investor confidence) or very rapid adoption (provoking public or political
backlash) could also present challenges, although neither is likely to derail
the technology's progress longer-term.
Regulation also presents a significant risk to the sector, especially where
behavioural remedies may challenge some of the mega-caps' natural monopoly
status. We are hopeful the worst-case scenarios will be avoided given
potential changes in personnel leading some of the relevant government
agencies (Department of Justice; Federal Trade Commission; Securities and
Trade Commission) and the critical role mega-cap US technology companies will
play in counterbalancing the AI threat from China. Indeed, a further
deterioration in US-Sino relations may present a greater risk, and any
escalation in tensions around Taiwan in particular would likely put pressure
on the semiconductor industry.
Conclusion
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.
* not held
** sold during reporting period
Ben Rogoff & Alastair Unwin
Polar Capital Technology Trust
9 December 2024
PORTFOLIO BREAKDOWN
Market Capitalisation of underlying investments
% of invested assets Less than $1bn $1bn-$10bn Over $10bn
as at 31 October 2024 0.3 9.4 90.3
as at 30 April 2024 0.7 10.0 89.3
Breakdown of Investments by Geographic Region+ 31 October 2024 30 April 2024
US & Canada 71.4 72.6
Asia Pacific (ex-Japan) 11.9 10.0
Japan 4.8 5.1
Europe (inc - UK) 4.7 6.6
Middle East & Africa 2.7 3.0
Latin America 0.4 0.3
+ % of Net Assets, totals do not add up to 100 due to the exclusion of other
net assets.
Classification of Investments as at 31 October 2024++
North Europe Asia Pacific Total Total
America (inc. (inc. Middle 31 October 30 April
Latin America) East) 2024 2024
% % % % %
Semiconductors & Semiconductor Equipment 23.5 1.8 10.6 35.9 35.2
Software 13.9 0.3 2.2 16.4 22.8
Interactive Media & Services 11.2 0.1 1.3 12.6 13.4
Technology Hardware, Storage & Peripherals 5.6 - 1.1 6.7 8.2
Electronic Equipment, Instruments & Components 2.2 - 2.9 5.1 3.8
IT Services 3.7 0.1 - 3.8 3.0
Communications Equipment 3.7 - - 3.7 1.6
Broadline Retail 2.0 - 0.1 2.1 2.2
Entertainment 0.9 1.1 - 2.0 2.5
Aerospace & Defense 1.3 - - 1.3 0.8
Media 0.9 0.2 - 1.1 0.5
Electrical Equipment 0.9 - - 0.9 -
Automobiles 0.7 - - 0.7 0.8
Healthcare Equipment & Supplies 0.4 - 0.3 0.7 0.4
Hotels, Restaurants & Leisure 0.5 0.1 - 0.6 0.5
Building Products - - 0.5 0.5 0.4
Financial Services 0.2 0.3 - 0.5 0.2
Professional Services - 0.4 - 0.4 -
Machinery - - 0.3 0.3 0.8
Life Sciences Tools & Services - 0.2 - 0.2 0.1
Specialty Retail - 0.1 - 0.1 -
Healthcare Technology 0.1 - - 0.1 -
Chemicals - - 0.1 0.1 0.1
Trading Companies & Distributors 0.1 - - 0.1 -
Ground Transportation - - - - 0.3
Total investments (£4,007,531,000) 71.8 4.7 19.4 95.9 97.6
Other net assets (excluding loans) 2.1 1.0 2.8 5.9 3.7
Loans - - (1.8) (1.8) (1.3)
Grand total (net assets of £4,179,544,000) 73.9 5.7 20.4 100.0 -
At 30 April 2024 (net assets of £3,804,553,000) 74.9 6.8 18.3 - 100.0
++ Classifications are derived from the Benchmark as far as possible. The
categorisation of each investment is shown in the portfolio available on the
Company's website. Not all sectors of the Benchmark are shown, only those in
which the Company has an investment at the period end or in the comparative
period.
.
Ranking Value of holding % of net assets
£'000
31 30 Apr Stock Sector Region 31 30 31 30
Oct 2024 October April October April
2024 2024 2024 2024 2023
1 (1) Nvidia Semiconductors & Semiconductor Equipment North America 496,521 395,876 11.9 10.4
2 (2) Microsoft Software North America 297,240 335,337 7.1 8.8
3 (4) Meta Platforms Interactive Media & Services North America 275,857 188,666 6.6 5.0
4 (6) Taiwan Semiconductor Semiconductors & Semiconductor Equipment Asia Pacific 219,140 139,427 5.2 3.7
5 (5) Apple Technology Hardware, Storage & Peripherals North America 195,144 163,959 4.7 4.3
6 (3) Alphabet Interactive Media & Services North America 193,274 278,153 4.6 7.3
7 (8) Broadcom Semiconductors & Semiconductor Equipment North America 175,372 96,108 4.2 2.5
8 (13) Arista Networks Communications Equipment North America 102,607 62,166 2.5 1.6
9 (14) Cloudflare IT Services North America 87,470 60,421 2.1 1.6
10 (10) Micron Technology Semiconductors & Semiconductor Equipment North America 81,290 85,513 1.9 2.2
Top 10 investments 2,123,915 50.8
11 (7) Advanced Micro Devices Semiconductors & Semiconductor Equipment North America 75,690 134,752 1.8 3.5
12 (12) Amazon.com Broadline Retail North America 66,139 73,038 1.6 1.9
13 (37) Advantest Semiconductors & Semiconductor Equipment Asia Pacific 65,265 26,645 1.6 0.7
14 (16) CyberArk Software Software Asia Pacific 62,457 56,882 1.5 1.5
15 (19) ServiceNow Software North America 57,078 43,916 1.4 1.2
16 (41) eMemory Technology Semiconductors & Semiconductor Equipment Asia Pacific 53,818 25,127 1.3 0.7
17 (38) Tencent Interactive Media & Services Asia Pacific 53,360 26,331 1.3 0.7
18 (-) Oracle Software North America 49,005 - 1.2 -
19 (21) Spotify Technology Entertainment Europe 48,122 40,702 1.1 1.1
20 (18) KLA-Tencor Semiconductors & Semiconductor Equipment North America 47,795 47,574 1.1 1.3
Top 20 investments 2,702,644 64.7
21 (26) Axon Enterprise Aerospace & Defense North America 47,765 31,277 1.1 0.8
22 (33) Quanta Computer Technology Hardware, Storage & Peripherals Asia Pacific 46,691 27,418 1.1 0.7
23 (17) Disco Corporation Semiconductors & Semiconductor Equipment Asia Pacific 45,320 55,005 1.1 1.4
24 (89) Palo Alto Networks Software North America 41,698 4,101 1.0 0.1
25 (44) Shopify IT Services North America 39,108 21,874 0.9 0.6
26 (43) Amphenol Electronic Equipment, Instruments & Components North America 36,569 23,267 0.9 0.6
27 (49) The Trade Desk Media North America 36,505 19,913 0.9 0.5
28 (15) Pure Storage Technology Hardware, Storage & Peripherals North America 35,570 57,835 0.9 1.5
29 (-) Ciena Communications Equipment North America 34,287 - 0.8 -
30 (-) MA-COM Technology Solutions Semiconductors & Semiconductor Equipment North America 34,137 - 0.8 -
Top 30 investments 3,100,294 74.2
31 (28) Tesla Automobiles North America 32,841 30,877 0.7 0.8
32 (-) TDK Electronic Equipment, Instruments & Components Asia Pacific 30,240 - 0.7 -
33 (25) ASM International Semiconductors & Semiconductor Equipment Europe 30,123 31,519 0.7 0.9
34 (50) E Ink Electronic Equipment, Instruments & Components Asia Pacific 29,381 19,435 0.7 0.5
35 (42) MongoDB IT Services North America 29,025 24,703 0.7 0.6
36 (65) Monolithic Power Systems Semiconductors & Semiconductor Equipment North America 28,420 11,850 0.7 0.3
37 (46) Coherent Electronic Equipment, Instruments & Components North America 26,572 20,575 0.7 0.6
38 (48) Monday.com Software Asia Pacific 25,920 19,936 0.6 0.5
39 (-) Lotes Electronic Equipment, Instruments & Components Asia Pacific 25,052 - 0.6 -
40 (9) ASML Semiconductors & Semiconductor Equipment Europe 23,453 86,304 0.6 2.3
Top 40 investments 3,381,321 80.9
41 (-) Eaton Electrical Equipment North America 23,439 - 0.6 -
42 (53) Nitto Boseki Building Products Asia Pacific 22,673 16,690 0.5 0.4
43 (51) DoorDash Hotels, Restaurants & Leisure North America 22,308 19,289 0.5 0.4
44 (-) AppLovin Software North America 21,542 - 0.5 -
45 (-) SH Hynix Semiconductors & Semiconductor Equipment Asia Pacific 19,487 - 0.5 -
46 (61) Roblox Entertainment North America 19,476 13,212 0.5 0.4
47 (63) Fabrinet Electronic Equipment, Instruments & Components Asia Pacific 18,247 12,655 0.5 0.3
48 (32) Netflix Entertainment North America 17,779 28,412 0.4 0.7
49 (-) Relx Professional Services Europe 17,670 - 0.4 -
50 (27) Datadog Software North America 17,600 30,917 0.4 0.8
Top 50 investments 3,581,542 85.7
51 (69) MercadoLibre Broadline Retail North America 17,348 10,587 0.4 0.3
52 (59) Elite Material Electronic Equipment, Instruments & Components Asia Pacific 17,277 13,469 0.4 0.4
53 (82) Intuitive Surgical Healthcare Equipment & Supplies North America 15,816 6,821 0.4 0.2
54 (34) HubSpot Software North America 15,794 26,899 0.4 0.7
55 (-) Astera Labs Semiconductors & Semiconductor Equipment North America 15,644 - 0.4 -
56 (-) Corning Electronic Equipment, Instruments & Components North America 15,312 - 0.4 -
57 (84) Varonis Systems Software North America 15,253 5,461 0.4 0.1
58 (36) SAP Software Europe 15,134 26,651 0.3 0.7
59 (45) Harmonic Drive Systems Machinery Asia Pacific 14,915 20,982 0.3 0.6
60 (-) GE Vernova Electrical Equipment North America 14,072 - 0.3 -
Top 60 investments 3,738,107 89.4
61 (-) First Solar Semiconductors & Semiconductor Equipment North America 12,859 - 0.3 -
62 (64) CommVault Systems Software North America 12,483 12,120 0.3 0.3
63 (74) Hoya Healthcare Equipment & Supplies Asia Pacific 12,365 8,276 0.3 0.2
64 (-) Adyen Financial Services Europe 12,192 - 0.3 -
65 (-) Impinj Semiconductors & Semiconductor Equipment North America 12,010 - 0.3 -
66 (35) Elastic Software North America 11,982 26,879 0.3 0.7
67 (80) ASMPT Semiconductors & Semiconductor Equipment Asia Pacific 10,972 7,231 0.3 0.2
68 (55) ARM ADR Semiconductors & Semiconductor Equipment Europe 10,932 14,683 0.3 0.4
69 (-) Celestica Electronic Equipment, Instruments & Components North America 10,615 - 0.2 -
70 (-) Cisco Systems Communications Equipment North America 10,219 - 0.2 -
Top 70 investments 3,854,736 92.2
71 (-) Criteo Sa Spon ADR Media Europe 8,861 - 0.2 -
72 (54) Tokyo Electron Semiconductors & Semiconductor Equipment Asia Pacific 8,854 16,318 0.2 0.4
73 (-) Samsara Software North America 8,585 - 0.2 -
74 (81) Nova Semiconductors & Semiconductor Equipment Asia Pacific 8,548 7,111 0.2 0.2
75 (-) Palantir Technologies Software North America 8,032 - 0.2 -
76 (-) DocuSign Software North America 7,212 - 0.2 -
77 (-) F5 Networks Communications Equipment North America 6,881 - 0.2 -
78 (95) Oxford Nanopore Technologies Life Sciences Tools & Services Europe 6,445 2,012 0.2 0.1
79 (-) BWX Technologies Aerospace & Defense North America 6,317 - 0.2 -
80 (-) Square Financial Services North America 6,211 - 0.2 -
Top 80 investments 3,930,682 94.2
81 (58) BE Semiconductor Industries Semiconductors & Semiconductor Equipment Europe 6,074 13,834 0.2 0.4
82 (-) Wise IT Services Europe 6,017 - 0.1 -
83 (-) Zalando SE Specialty Retail Europe 5,958 - 0.1 -
84 (-) Tower Semiconductor Semiconductors & Semiconductor Equipment Asia Pacific 5,528 - 0.1 -
85 (-) Cellebrite Software Asia Pacific 5,276 - 0.1 -
86 (91) Klaviyo Software North America 4,970 2,841 0.1 0.1
87 (-) Global-e Online Broadline Retail Asia Pacific 4,625 - 0.1 -
88 (78) Kinaxis Software North America 4,386 7,651 0.1 0.2
89 (-) Doximity Healthcare Technology North America 4,331 - 0.1 -
90 (67) Braze Software North America 4,226 11,516 0.1 0.3
Top 90 investments 3,982,073 95.3
91 (85) MEC Chemicals Asia Pacific 4,153 4,692 0.1 0.1
92 (-) Xometry Trading Companies & Distributors North America 3,961 - 0.1 -
93 (88) Deliveroo Hotels, Restaurants & Leisure Europe 3,813 4,197 0.1 0.1
94 (-) Camtek Semiconductors & Semiconductor Equipment Asia Pacific 3,368 - 0.1 -
95 (93) VTEX Interactive Media & Services Europe 3,225 2,532 0.1 0.1
96 (-) SiTime Semiconductors & Semiconductor Equipment North America 2,409 - 0.1 -
97 (94) Seeing Machines Electronic Equipment, Instruments & Components Asia Pacific 2,019 2,186 - 0.1
98 (92) Zuken IT Services Asia Pacific 1,787 2,748 - 0.1
99 (-) Astroscale Aerospace & Defense Asia Pacific 722 - - -
100 (96) Cermetek Microelectronics Electronic Equipment, Instruments & Components North America 1 1 - -
Total equities 4,007,531 95.9
Other net assets* 172,013 4.1
Total net assets 4,179,544 100.0
Note: Asia Pacific includes Middle East and North America includes Latin
America.
*Refer to Balance Sheet below for more details.
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 October 2024
(Unaudited) (Audited)
Six months ended Six months ended Year ended
31 October 2024 31 October 2023 30 April 2024
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
Return Return Return Return Return Return Return Return Return
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment income 2 10,747 - 10,747 7,336 - 7,336 15,471 - 15,471
Other operating income 3,494 - 3,494
2 3,374 - 3,374 6,438 - 6,438
Gains on investments held at fair value - 341,136 341,136
3 - 439,407 439,407 - 1,147,978 1,147,978
Gains/(losses) on derivatives - (9,096) (9,096)
4 - 3,925 3,925 - (22,030) (22,030)
Other currency (losses)/gains - 3,889 3,889 - (1,292) (1,292)
5 - (3,548) (3,548)
Total income 14,121 439,784 453,905 10,830 335,929 346,759 21,909 1,124,656 1,146,565
Expenses
Investment management fee 6 (15,152) - (15,152) - (12,155) (25,919) - (25,919)
(12,155)
Other administrative expenses 7 (793) - (793) (600) - (600) (1,393) - (1,393)
Total expenses (15,945) - (15,945) (12,755) - (12,755) (27,312) - (27,312)
(Loss)/profit before finance costs and tax (1,824) 439,784 437,960 (1,925) 335,929 334,004 (5,403) 1,124,656 1,119,253
Finance costs (912) - (912) (937) - (937) (1,874) - (1,874)
(Loss)/profit before tax (2,736) 439,784 437,048 (2,862) 335,929 333,067 (7,277) 1,124,656 1,117,379
Tax (1,305) - (1,305) (919) - (919) (1,942) - (1,942)
Net (loss)/profit for the period and total comprehensive (expense)/income (4,041) 439,784 435,743 (3,781) 335,929 332,148 (9,219) 1,124,656 1,115,437
(Losses)/earnings per share (basic and diluted) (pence)* 9 (0.34) 36.77 36.43 (0.30) 26.93 26.63 (0.75) 91.17 90.42
* The comparative figures have been rebased following the ten for one share
split on 13 September
2024.
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards.
The revenue return and capital return columns are supplementary to this and
are prepared under guidance published by the Association of Investment
Companies (AIC).
All items in the above statement derive from continuing
operations.
The Company does not have any other comprehensive
income.
BALANCE SHEET
as at 31 October 2024
Note (Unaudited) (Unaudited) (Audited)
31 October 2024 31 October 2023 30 April 2024
£'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 4,007,531 2,912,344 3,713,758
Current assets
Receivables 55,589 30,208 37,607
Overseas tax recoverable 419 379 346
Cash and cash equivalents 8 191,371 247,526 103,033
Derivative financial instruments 14,522 6,814 9,557
261,901 284,927 150,543
Total assets 4,269,432 3,197,271 3,864,301
Current liabilities
Payables (13,294) (53,547) (11,295)
Bank - (50,345) (48,036)
loans*
Bank overdraft 8 - (342) (437)
(13,294) (104,234) (59,768)
Non-current liabilities
Bank loans* (76,594) - -
Net assets 4,179,544 3,093,037 3,804,533
Equity attributable to equity shareholders
Share capital 10 34,329 34,329 34,329
Capital redemption reserve 12,802 12,802 12,802
Share premium 223,374 223,374 223,374
Special non-distributable reserve 7,536 7,536 7,536
Capital reserves 4,048,422 2,952,436 3,669,370
Revenue reserve (146,919) (137,440) (142,878)
Total equity 4,179,544 3,093,037 3,804,533
Net asset value per ordinary share (pence** 11 352.15 250.96 315.41
* As detailed within the Chair's Statement - see paragraph on Gearing.
** The comparative figures have been rebased following the ten for one share
split on 13 September 2024.
Approved and authorised by the Board of Directors on 9 December 2024.
Catherine Cripps
Chair
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 October 2024
(Unaudited) Six months ended 31 October 2024
Note Share Capital Share Special non- Capital Revenue Total
capital redemption premium distributable reserves reserve £'000
£'000 reserve £'000 reserve £'000 £'000
£'000 £'000
Total equity at 30 April 2024 34,329 12,802 223,374 7,536 3,669,370 (142,878) 3,804,533
Total comprehensive income/(expense):
Profit/(loss) for the period to 9
31 October 2024 - - - - 439,784 (4,041) 435,743
Transactions with owners, recorded directly to equity: 10 - - - -
Ordinary shares repurchased into treasury
(60,668) - (60,668)
Share split costs - - - - (64) - (64)
Total equity at 31 October 2024 34,329 12,802 223,374 7,536 4,048,422 (146,919) 4,179,544
(Unaudited) Six months ended 31 October 2023
Share Capital Share Special non- Capital Revenue Total
capital redemption premium distributable reserves reserve £'000
£'000 reserve £'000 reserve £'000 £'000
£'000 £'000
Total equity at 30 April 2023 34,329 12,802 223,374 7,536 2,683,759 (133,659) 2,828,141
Total comprehensive income/(expense):
Profit/(loss) for the period to 9 - - - - 335,929 (3,781) 332,148
31 October 2023
Transactions with owners, recorded directly to equity: 10 - - - - (67,252) - (67,252)
Ordinary shares repurchased into treasury
Total equity at 31 October 2023 34,329 12,802 223,374 7,536 2,952,436 (137,440) 3,093,037
(Audited) Year ended 30 April 2024
Share Capital Share Special non- Capital Revenue Total
capital redemption premium distributable reserves reserve £'000
£'000 reserve £'000 reserve £'000 £'000
£'000 £'000
Total equity at 30 April 2023 34,329 12,802 223,374 7,536 2,683,759 (133,659) 2,828,141
Total comprehensive income/(expense):
Profit/(loss) for the year to 30 April 2024 9 - - - -
1,124,656 (9,219) 1,115,437
Transactions with owners, recorded directly to equity:
Ordinary shares repurchased into treasury 10 - - - -
(139,045) - (139,045)
Total equity at 30 April 2024 34,329 12,802 223,374 7,536 3,669,370 (142,878) 3,804,533
Note - Share capital, Capital redemption reserve, Share premium and Special
non-distributable reserve are all non-distributable. Capital reserves and
Revenue reserve are
distributable.
CASH FLOW STATEMENT
for the six months ended 31 October 2024
(Unaudited) (Audited)
Note Six months ended Six months ended Year ended
31 October 2024 31 October 2023 30 April 2024
£'000 £'000 £'000
Cash flows from operating activities
Profit before tax 437,048 333,067 1,117,379
Adjustments:
Gains on investments held at fair value through profit or loss 3 (341,136)
(439,407) (1,147,978)
(Gains)/losses on derivative financial instruments 4 (3,925) 9,096 22,030
Proceeds of disposal on investments 1,965,901 1,140,262 2,857,451
Purchases of investments (1,837,141) (1,050,305) (2,811,714)
Proceeds on disposal of derivative financial instruments 4,754
44,496 21,743
Purchases of derivative financial instruments (45,537) (18,093) (50,759)
Decrease/(increase) in receivables 1,581 371 (742)
Increase in payables 354 327 641
Finance costs 912 937 1,874
Overseas tax (1,378) (919) (1,909)
Foreign exchange losses/(gains) 5 3,548 (3,889) 1,292
Net cash generated from operating activities 126,452 74,472 9,308
Cash flows from financing activities
Finance costs paid (928) (934) (1,871)
Ordinary shares repurchased into treasury 10 (61,701) (68,839) (139,836)
Share split costs (59) - -
Loan repaid (46,688) - -
Loan Drawn 78,179 - -
Net cash used in financing activities (31,197) (69,773) (141,707)
Net increase/(decrease) in cash and cash equivalents 95,255 4,699 (132,399)
Cash and cash equivalents at the beginning of the period 239,096 239,096
102,596
Effect of movement in foreign exchange rates on cash held 5 3,389 (4,101)
(6,480)
Cash and cash equivalents at the end of the period 8 191,371 247,184 102,596
Reconciliation of cash and cash equivalents
to the Balance Sheet is as follows:
Cash held at bank and derivative clearing houses 8 173,081 138,967 69,581
BlackRock's Institutional Cash Series plc (US Treasury Fund), money market 8 108,217 33,015
fund
18,290
Cash and cash equivalents at the end of the period 8 191,371 247,184 102,596
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 31 October 2024
1. GENERAL INFORMATION
The Financial Statements comprise the unaudited results for Polar Capital
Technology Trust Plc for the six-month period to 31 October
2024.
The unaudited Financial Statements to 31 October 2024 have been prepared in
accordance with UK-adopted International Accounting Standard 34 "Interim
Financial Reporting" and the accounting policies set out in the statutory
annual Financial Statements of the Company for the year ended 30 April
2024.
Where presentational guidance set out in the Statement of Recommend Practice
("the SORP") for investment trusts issued by the Association of Investment
Companies in July 2022 is consistent with the requirements of UK-adopted
International Accounting Standard ("UK-adopted IAS"), the accounts have been
prepared on a basis compliant with the recommendations of the
SORP.
The financial information in this Half Year Report does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. The
financial information for the six-month periods ended 31 October 2024 and 31
October 2023 has not been audited. The figures and financial information for
the year ended 30 April 2024 are an extract from the latest published
Financial Statements and do not constitute statutory accounts for that year.
Full statutory accounts for the year ended 30 April 2024, prepared under
UK-adopted IAS, including the report of the auditors which was unqualified,
did not draw attention to any matters by way of emphasis and did not contain a
statement under section 498 of the Companies Act 2006, have been delivered to
the Registrar of Companies.
The accounting policies have not varied from those described in the Annual
Report for the year ended 30 April 2024.
The Directors believe it is appropriate to adopt the going concern basis in
preparing the Financial Statements. As at 31 October 2024 the Company's total
assets exceeded its total liabilities by a multiple of over 47. The Board
continually monitors the financial position of the Company. The Directors have
considered a detailed assessment of the Company's ability to meet its
liabilities as they fall due. The assessments took account of the Company's
current financial position, its cash flows and its liquidity position. In
light of the results of these assessments, the Company's cash balances, and
the liquidity position, the Directors consider that the Company has adequate
financial resources to enable them to continue in operational existence for at
least 12 months. Accordingly, the Directors are satisfied that it is
appropriate to continue to adopt the going concern basis in preparing the
Company's Financial
Statements.
There were no new UK-adopted IAS or amendments to UK-adopted IAS applicable to
the current year which had any significant impact on the Company's Financial
Statements. There were no new IFRSs or amendments to IFRSs
applicable to the current year which had any significant impact on the
Company's Financial Statements.
i) The following new or amended standards became effective for the current
annual reporting period and the adoption of the standards and interpretations
have not had a material impact on the Financial Statements of the
Company.
Standards & Interpretations Effective for periods commencing on or after
Amendments to IAS 1 Presentation of Financial Statements The amendments clarify that only covenants with which an entity must comply on 1 January 2024
or before the reporting date will affect a liability's classification as
- Non-current liabilities with Covenants current or non-current and the disclosure requirement in the financial
statements for the risk that non-current liabilities with the covenant could
- Deferral of Effective Date Amendment (published 15 July 2020) become repayable within twelve months.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
(publicised 23 January 2020)
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) The amendments address the disclosure requirements to enhance the transparency 1 January 2024
of supplier finance arrangements and their effects on a company's liabilities,
cash flows and exposure to liquidity risk.
ii) At the date of authorisation of the Company's Financial Statements, the
following amended standard that potentially impacts the Company has been
issued but not yet effective and has not been applied in the Financial
Statements:
Standards & Interpretations Effective for periods commencing on or after
Lack of Exchangeability (Amendments to IAS 21) The amendments specify how to assess whether a currency is exchangeable and 1 January 2024
how to determine a spot exchange rate if it is not.
The Directors expect that the adoption of the standards listed above will have
either no impact or that any impact will not be material on the Financial
Statements of the Company in future periods.
The Financial Statements are presented in Pounds Sterling and all values are
rounded to the nearest thousand pounds (£'000), except where otherwise
stated.
The majority of the Company's investments are in US Dollars, the level of
which varies from time to time. The Board considers the functional currency to
be Sterling. In arriving at this conclusion, the Board considered that
Sterling is the most relevant to the majority of the Company's shareholders
and creditors and the currency in which the majority of the Company's
operating expenses are paid.
2. INCOME
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2024 31 October 2023 30 April 2024
£'000 £'000 £'000
Investment income
Revenue:
UK dividend income 58 - -
Overseas dividend income 10,689 7,336 15,471
Total investment income 10,747 7,336 15,471
Other operating income
Bank interest 1,898 1,365 2,529
Money market fund interest 1,476 2,129 3,909
3,374 3,494 6,438
Total Income 14,121 10,830 21,909
Included within income from investments is £48,000 (31 October 2023 and 30
April 2024: nil) of special dividends classified as revenue in nature. No
special dividends have been recognised in capital (31 October 2023 and 30
April 2024: same).
All investment income is derived from listed investments.
3. GAINS ON INVESTMENT HELD AT FAIR VALUE
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2024 31 October 2023 30 April
£'000 £'000 2024
£'000
Net gains on disposal of investments at historic cost 332,797 100,399 476,684
Transfer on disposal of investments (368,858) (29,361) (151,853)
(Losses)/gains on disposal of investments based on carrying value at previous (36,061) 71,038 324,831
balance sheet date
Valuation gains on investments held during the year 475,468 270,098 823,147
439,407 341,136 1,147,978
4. GAINS/(LOSSES) ON DERIVATIVES
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2024 31 October 2023 30 April
£'000 £'000 2024
£'000
Gains/(losses)on disposal of derivatives held 4,690 (15,963) (21,716)
(Losses)/gains on revaluation of derivatives held (765) 6,867 (314)
3,925 (9,096) (22,030)
The derivative financial instruments represent the call and put options, which
are used for the purpose of efficient portfolio management. As at 31 October
2024, the Company held NASDAQ 100 Stock Index put options, and the market
value of the open put option position was £9,950,000 (31 October 2023: NASDAQ
100 Stock Index put options with a market value of £3,806,000; 30 April 2024:
NASDAQ 100 Stock Index put options with a market value of £7,192,000). As at
31 October 2024, the Company also held Microsoft Corp call options and Apple
Inc call options, the market value of these open call options position were
£2,736,000 and £1,836,000 respectively (31 October 2023: Microsoft Corp call
options with a market value of £3,008,000; 30 April 2024: Microsoft Corp call
options with a market value of £403,000 and Apple Inc call options with a
market value of £1,962,000).
5. OTHER CURRENCY (LOSSES)/GAINS
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2024 31 October 2023 30 April
£'000 £'000 2024
£'000
Exchange (losses)/gains on currency balances (6,480) 3,389 (4,101)
Exchange gains on settlement of loan balances 9,753 - -
Exchange (losses)/gains on translation of loan balances (6,821) 500 2,809
(3,548) 3,889 (1,292)
6. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
INVESTMENT MANAGEMENT FEE
The investment management fee, which is paid by the Company monthly in arrears
to the Investment Manager, is calculated on the daily Net Asset Value ("NAV")
as
follows:
- Tier 1: 0.80 per cent. for such of the NAV up to and including £2
billion;
- Tier 2: 0.70 per cent. for such of the NAV between £2 billion and £3.5
billion;
- Tier 3: 0.60 per cent. for such of the NAV above £3.5
billion;
Any investments in funds managed by Polar Capital are excluded from the
investment management fee
calculation.
PERFORMANCE FEE
The Investment Manager is entitled to a performance fee based on the level of
outperformance of the Company's net asset value per share over its benchmark,
the Dow Jones World Technology Index (total return, Sterling adjusted, with
the removal of relevant withholding taxes) during the relevant performance
period.
At 31 October 2024, there was no accrued performance fee (31 October 2023 and
30 April 2024: £nil). The quantum of any performance fee will be based on
the audited net asset value at the year end on 30 April
2025.
A fuller explanation of the performance and management fee arrangements is
given in the Annual
Report.
7. OTHER ADMINISTRATIVE EXPENSES
At 31 October 2024, the Company's other administrative expenses, were
£793,000 (31 October 2023: £600,000 and 30 April 2024:
£1,393,000).
8. CASH AND CASH EQUIVALENTS
(Unaudited) (Unaudited) (Audited)
For the six months ended For the six months ended For the
31 October 31 October Year ended
2024 2023 30 April
£'000 £'000 2024
£'000
Cash at bank 166,427 138,576 69,964
Cash held at derivative clearing houses 6,654 733 54
Money market fund 18,290 108,217 33,015
Cash and cash equivalent 191,371 247,526 103,033
Bank overdraft - (342) (437)
Total 191,371 247,184 102,596
As at 31 October 2024, the Company held BlackRock's Institutional Cash Series
plc - US Treasury Fund with a market value of £18,290,000 (31 October 2023:
£108,217,000 and 30 April 2024: £33,015,000), which is managed as part of
the Company's cash and cash equivalents as defined under IAS
7.
9. (LOSSES)/EARNINGS PER ORDINARY SHARE
(Unaudited) (Unaudited) (Audited)
For the six months ended For the six months ended For the
31 October 31 October Year ended
2024 2023 30 April
£'000 £'000 2024
£'000
Net (loss)/profit for the period:
Revenue (4,041) (3,781) (9,219)
Capital 439,784 335,929 1,124,656
Total 435,743 332,148 1,115,437
Weighted average number of shares in issue during the period* 1,196,163,910 1,247,218,540 1,233,614,300
Revenue* (0.34)p (0.30)p (0.75)p
Capital* 36.77p 26.93p 91.17p
Total 36.43p 26.63p 90.42p
* The comparative figures have been rebased following the ten for one share
split on 13 September 2024.
10. SHARE CAPITAL
At 31 October 2024 there were 1,186,874,680 Ordinary Shares in issue (31
October 2023: 1,232,492,570* and 30 April 2024: 1,206,215,690*). During the
six months ended 31 October 2024, there were no Ordinary Shares issued to the
market (31 October 2023 and 30 April 2024:
same).
At the Annual General Meeting held on 11 September 2024, Shareholders approved
the resolution to split the existing Ordinary Shares of 25 pence each into ten
new Ordinary Shares of 2.5 pence each. Following the completion of this
share split, 137,315,000 Ordinary Shares of 25 pence each (including
18,073,403 shares held in treasury) were sub-divided into 1,373,150,000 new
Ordinary Shares of 2.5 pence each (including 180,734,030 shares held in
treasury) on 13 September 2024.
During the period, 19,341,010 (31 October 2023: 30,362,870* and 30 April 2024:
56,639,750*) Ordinary Shares of 2.5 pence each were repurchased into treasury
at a total cost of £60,368,000 (31 October 2023: £66,918,000 and 30 April
2024: £138,355,000).
*The comparative figures have been rebased following the ten for one share
split on 13 September
2024.
Subsequent to the period end, and to 9 December 2024 (latest practicable
date), 1,947,765 Ordinary Shares were repurchased and placed into treasury at
an average price of 338.11p per share.
11. NET ASSET VALUE PER ORDINARY SHARE
(Unaudited) (Unaudited) (Audited)
31 October 31 October 30 April
2024 2023 2024
£'000 £'000 £'000
Undiluted:
Net assets attributable to ordinary shareholders (£'000) 4,179,544 3,093,037 3,804,533
Ordinary shares in issue at end of period* 1,186,874,680 1,232,492,570 1,206,215,690
Net asset value per ordinary share* 352.15p 250.96p 315.41p
*The comparative figures have been rebased following the ten for one share
split on 13 September 2024.
12. DIVIDEND
No interim dividend has been declared for the period ended 31 October 2024 nor
the periods ended 31 October 2023 or 30 April 2024.
13. RELATED PARTY TRANSACTIONS
There have been no related party transactions that have materially affected
the financial position or the performance of the Company during the six-month
period to 31 October 2024.
14. POST BALANCE SHEET EVENTS
Subsequent to the period end, and to 9 December 2024, 1,947,765 Ordinary
Shares were repurchased and placed into treasury at an average price of
338.11p per share.
There are no other significant events that have occurred after the end of the
reporting period to the date of this report which require disclosure.
Alternative Performance Measures (APMs)
In assessing the performance of the Company, the Investment Manager and the
Directors use the following APMs which are not defined in accounting standards
or law but are considered to be known industry metrics:
NAV Total Return (APM)
The NAV total return shows how the net asset value per share has performed
over a period of time taking into account both capital returns and dividends
paid to shareholders.
NAV total return reflects the change in value of NAV plus the dividend paid to
the Shareholder. Since the Company has not paid a dividend the NAV total
return is the same as the NAV per share return as at the six months ended 31
October 2024 and year ended 30 April 2024.
(Unaudited) (Audited)
For the six months ended Year ended
31 October 2024 30 April 2024*
Opening NAV per share
a 315.41p 223.95p
Closing NAV per share
b 352.15p 315.41p
NAV total return (b/a)-1
11.6% 40.8%
(Discount)/Premium (APM)
A description of the difference between the share price and the net asset
value per share usually expressed as a percentage (%) of the net asset value
per share. If the share price is higher than the NAV per share the result is a
premium. If the share price is lower than the NAV per share, the shares are
trading at a discount. A premium or discount is generally the consequence of
supply and demand for the shares on the stock market.
(Unaudited) (Audited)
31 October 30 April
2024 2024*
Closing share price
a 310.50p 292.00p
Closing NAV per share
b 352.15p 315.41p
Discount of ordinary share price to the NAV per ordinary share
(a/b)-1 (11.8%) (7.4%)
* Prior year was rebased following the sub-division of Ordinary Shares of 25p
each into 10 new Ordinary Shares of 2.5p each, approved at the AGM held on 11
September 2024 and effective on 13 September 2024.
DIRECTORS AND CONTACTS
Directors (all independent non-executive)
Catherine Cripps (Chair)
Tim Cruttenden (Senior Independent Director)
Jane Pearce (Audit Committee Chair from 31 October 2023)
Charles Park
Stephen White
Adiba Ighodaro (appointed from 3 December 2024)
Investment Manager and AIFM Portfolio Manager
Polar Capital LLP Ben Rogoff
Authorised and regulated by the Financial Services Authority
Deputy Manager
Alastair Unwin
Registered Office and address for contacting the Directors Company Secretary
16 Palace Street, London SW1E 5JD Polar Capital Secretarial Services Limited
020 7227 2700 represented by Jumoke Kupoluyi, ACG
Corporate Broker Depositary, Bankers and Custodian
Stifel Nicolaus Europe Limited HSBC Bank Plc, 8 Canada Square, London E14 5HQ
150 Cheapside
London EC2V 6ET
Registered Number
Incorporated in England and Wales with company number 3224867 and registered
as an investment company under section 833 of the Companies Act 2006
Forward Looking Statements
Certain statements included in this report and financial statements contain
forward-looking information concerning the Company's strategy, operations,
financial performance or condition, outlook, growth opportunities or
circumstances in the countries, sectors or markets in which the Company
operates. By their nature, forward-looking statements involve uncertainty
because they depend on future circumstances, and relate to events, not all of
which are within the Company's control or can be predicted by the Company.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove to have been correct. Actual results could differ
materially from those set out in the forward-looking statements. For a
detailed analysis of the factors that may affect our business, financial
performance or results of operations, we urge you to look at the principal
risks and uncertainties included in the Strategic Report section on pages 62
to 65 of the Annual Report. No part of these results constitutes, or shall be
taken to constitute, an invitation or inducement to invest in Polar Capital
Technology Trust plc or any other entity and must not be relied upon in any
way in connection with any investment decision. The Company undertakes no
obligation to update any forward-looking statements.
Half Year Report
The Company has opted not to post half year reports to shareholders. Copies of
the Half Year Report will be available from the Secretary at the Registered
Office, 16 Palace Street, London SW1E 5JD and from the Company's website at
www.polarcapitaltechnologytrust.co.uk
National Storage Mechanism
A copy of the Half Year Report has been submitted to the National Storage
Mechanism ('NSM') and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Neither the contents of the Company's website nor the contents of any website
accessible from the hyperlinks on the Company's website (or any other website)
is incorporated into or forms part of this announcement.
1 A basis point is a common unit of measure for interest rates and other
percentages in finance. One basis point equals 0.01%
2 Cloud based services and applications
3 GenAI: a type of AI that can create new content and ideas including
conversations, stories, images, videos and music
4 A put option grants the right to the owner to sell some/all of an
underlying security at a specified price, on or before the option's expiration
date
5 Apple, Microsoft, Alphabet, Amazon, NVIDIA, Meta and Tesla
6 P/E stands for price-to-earnings ratio, which relates a company's share
price to its earnings per share.
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