REG - Polar Cap Tech Tst - Half-year Report
12/12/2023 07:00
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RNS Number : 4032W Polar Capital Technology Trust PLC 12 December 2023
POLAR CAPITAL TECHNOLOGY TRUST PLC
UNAUDITED RESULTS ANNOUNCEMENT FOR THE SIX MONTHS TO 31 OCTOBER 2023
(Unaudited) (Audited)^ Movement %
As at 31 October 2023 As at 30 April
2023
Total net assets £3,093,037,000 £2,828,141,000 9.4
Net Asset Value (NAV) per ordinary share~ 2,509.58p 2,239.48p 12.1
Price per ordinary share 2,145.00p 1,940.00p 10.6
Benchmark 4,064.67 3,604.43 12.8
Dow Jones Global Technology Index (total return, Sterling adjusted, with the
removal of relevant withholding taxes)
Discount of ordinary share price to NAV per ordinary share~ (14.5%) (13.4%)
Ordinary shares in issue* 123,249,257 126,285,544 -2.4
Ordinary shares held in treasury*
14,065,743 11,029,456 27.5
* The issued share capital on 8 December 2023 (latest practicable date) was
137,315000 ordinary shares of which 14,655,401 were held in
treasury.
KEY DATA
For the six months to 31 October 2023
Local Currency Sterling Adjusted
% %
Benchmark (see above) 8.9 12.8
Other Indices over the period (total return)
FTSE World -1.4 2.0
FTSE All-share -5.9
S & P 500 composite 1.4 5.0
Nikkei 225 7.9 0.4
Eurostoxx 600 -5.5 -6.2
As at As at
Exchange rates 31 October 2023 30 April 2023
US$ to £ 1.2135 1.2569
Japanese Yen to £ 183.77 171.15
Euro to £ 1.1480 1.1385
No interim dividend has been declared for the period ended 31 October 2023,
nor were there for periods ended 31 October 2022 or 30 April 2023, and there
is no intention to declare a dividend for the year ending 30 April 2024.
~See Alternative Performance Measure below.
^The financial information for the six-month periods ended 31 October 2023 and
31 October 2022 have not been audited. The figures and financial information
above and in the following pages, for the year ended 30 April 2023 are an
extract from the latest published Financial Statements and do not constitute
statutory accounts for that year.
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
INVESTMENT MANAGER'S REPORT
Market Review
The fiscal half year from 30 April to 31 October 2023 saw global markets
continue to rebound from lows in March, to almost recover their December 2021
highs by the end of July. Investors were pulled back into the market as the US
regional banking and Credit Suisse turmoil appeared contained and economic
growth remained firm, supported by tight labour markets and a resilient
consumer. However, the market recovery proved short-lived and gave back about
half the gains by the end of October as financial conditions continued to
tighten and geopolitical risks increased.
The US once again led global markets, in Sterling terms, as the S&P 500
Index returned +5%, ahead of Europe (Eurostoxx 600 -6.2%), Japan (TOPIX -3%)
and Asia ex-Japan (MSCI All Country Asia ex-Japan Index -2.8%). Local currency
returns ex-US were even weaker as the trade-weighted dollar (DXY) strengthened
by 5.9%. Within the US, large caps continued to dominate returns as the
Russell 1000 Index (large cap) returned +4.9% against the Russell 2000 Index's
(small cap) -2%. In only one year since 1990 has there been a greater positive
return spread between the S&P 500 cap-weighted (+10.2%) and equal-weighted
(-2.8%) indices' returns year to date. The Russell 2000 Index broke 2022 lows,
revisiting November 2020 levels when Pfizer's vaccine data first emerged.
Breadth weakened through the period, as the percentage of companies
outperforming the NYSE declined by 34.5% to just 20.7%, and the concentration
of the largest seven (primarily technology) companies reached almost 30% of
the S&P 500 by the end of October. This phenomenon has been felt in global
indices: while the US accounts for 62.7% of the MSCI All Country World Index,
it is only 45.6% if the so-called 'Magnificent Seven' companies are excluded.
Despite widespread pessimism at the start of the calendar year, global growth
came in ahead of expectations, supported by resilient consumer spending and
strong labour markets. Even as central banks hiked rates aggressively,
inflation came down without triggering a recession or even an increase in the
unemployment rate, which still sits below pre-pandemic levels in many
countries. Decisive central bank tightening actions were important to ensure
that price increases were not embedded in higher inflationary expectations.
However, the drag on growth from monetary factors was offset by the post-Covid
improvement in goods and labour supply and a sustained rebound in services
demand. Central bank balance sheets contracted during the period but remain
significantly larger than they were pre-Covid, which supported liquidity even
as financial conditions tightened.
The US economy was particularly strong during the fiscal half year. Q1 US
economic growth was revised up, with Q1 real GDP growth of +2.2% on a q/q
(quarter-on-quarter) seasonally adjusted annual rate (SAAR) basis, which
accelerated to +4.9% in Q3. The US economy added an average of 205,000 jobs
each month during the fiscal half year, although the 'quits rate', (when an
employee voluntarily leaves their job) nearly returned to pre-pandemic levels
and average hourly earnings growth trended lower.
Inflation continued to trend down despite the stronger economy, albeit
frustratingly slowly from a policymaker's perspective. US core PCE (personal
consumer expenditure, which excludes volatile items such as food and energy
and is the Fed's preferred measure) fell from 4.8% in April to 3.7% in
September and core CPI (consumer price inflation) declined from 5.5% to 4.1%
over the same period. This eased concerns about the need for more aggressive
rate rises and longer-term measures of inflation expectations; both inflation
swap markets and consumer surveys suggest these remain well anchored.
After a June pause, at its July meeting the Fed raised the benchmark interest
rate by 25 basis points (bps) to a 5.25-5.5% target range, a 22-year high.
Although the Fed did not raise the fed funds rate thereafter, financial
conditions continued to tighten with the equivalent effect of a further 75bps
of rate hikes as 10-year Treasury yields climbed to touch 5%, the highest
point since 2007. The scale of the move in yields was highly significant and,
by the end of September, Treasury yields had posted their largest quarterly
rise since 1Q09 (bond yields move inversely to prices). This was driven by a
number of factors, including increased Treasury issuance after the debt
ceiling was raised, ongoing quantitative tightening (lower demand for
government bonds from the Federal Reserve) and a US credit rating downgrade by
Fitch Ratings, as well as concerns about China potentially offloading US
Treasuries to bolster the yuan.
Commentary from some Federal Reserve board members suggested they expected
interest rates to stay higher for longer, and the Fed's September meeting
projections indicated the expectation for only 50bps of cuts in 2024 (down
from 100bps in the June projections). Oil prices also increased during the
period, surpassing $95 in late September and up from the low-$70s in June,
which may have been responsible for an uptick in consumer inflation
expectations given the importance of gas prices to this metric.
Markets were buffeted by elevated levels of political risk. The narrowly
averted US government shutdown and downgrade by US rating agency Fitch focused
investors' attention from monetary policymakers (central bankers) towards
their fiscal counterparts (politicians). These included a hard-fought battle
over raising the debt ceiling (the maximum amount of debt the US government
can hold) which concluded in June and narrowly averted a government shutdown,
and the ousting of the House Speaker for the first time in history. President
Biden became the first sitting President to walk a picket line with the United
Automobile Workers, and striking Hollywood writers only agreed to go back to
work following a deal with the studios regarding working conditions and rules
governing the adoption of artificial intelligence (AI).
Technology review
The technology sector outperformed the broader market during the fiscal
half-year period as the Dow Jones Global Technology Index returned +12.8%
against the FTSE World Index's +2.0%. The two major technology market themes
during the period were the continued dominance of the largest technology
companies and the proliferation, evolution and investment implications of AI.
Large-cap technology stocks once again significantly outperformed their small
and mid-cap peers as the Russell 1000 Technology Index and Russell 2000
Technology Index delivered returns of +16.1% and +3.8% respectively. For the
calendar year through to the end of October, the gap between the two extended
to an extraordinary 40 percentage points (ppts) as the Russell 1000 Technology
Index's +41.7% return has dwarfed the Russell 2000 Technology Index's +1.9%.
Returns were led by the largest technology companies which in part explains
why the S&P 500 Information Technology Sector saw its valuation premium to
the S&P 500 Index expand to 1.36x from 1.21x at the start of the calendar
year, against a 10-year average of 1.1x. However, this valuation expansion was
not experienced beyond the US; the Dow Jones World ex-US Technology sector
(W2TEC) which has no mega-cap constituents, significantly underperformed
(+1.8%). In the US, all tech subsectors performed strongly: the Philadelphia
Semiconductor Index (SOX) returned +11.9% while the NASDAQ Internet Index and
Bloomberg Americas Software Index delivered +10.6% and 11.3% respectively.
AI dominated proceedings across most technology subsectors. Semiconductor
investors focused on the AI-related semiconductor supply chain as cloud
providers invest in advance of the anticipated scaling of AI workloads. NVIDIA
returned +52.2% after an extraordinary April quarterly earnings report and
next quarter revenue guide ($11bn versus $7.2bn expected), whereupon the stock
added the largest single-day market-cap gain in US stock market history and
touched a $1trn market cap. A number of smaller-cap semiconductor supply chain
and semiconductor capital equipment stocks performed well as alternative ways
to gain exposure to the AI/parallel computing trend. In the real world,
strength in AI-related data centre spending 'crowded out' non-AI spending in
areas such as CPU (central processing unit)/cloud servers, reinforcing the
divergence in semiconductor stock price returns. Beyond AI/data centre,
semiconductor fundamentals were mixed; communications infrastructure spending
remained weak, PC and smartphone inventory cycles appeared to bottom while
automotive and industrial end markets held up well (although this was
challenged during Q3 earnings announcements in early November).
Given the strategic importance of AI, the US government took further steps to
curtail China's ability to compete, including banning the export of some
leading-edge semi-cap equipment (putting pressure on other governments to
undertake similar actions) and preventing the sale of the most advanced AI
chips to China. These rules will be updated every year as technology advances
continue. Wafer fabrication equipment (WFE) spending is now expected to reach
$80bn this year, up from previous expectations in the low $70bn range, with
the incremental upside coming from China (perhaps in anticipation of tighter
regulations). US government subsidy also played a major part; structures and
investments related to the Inflation Reduction Act (IRA) and CHIPS Act have
accounted for essentially all the growth in US non-residential fixed
investment this year.
During the fiscal half year, aggregate public cloud revenue growth stabilised
at c19% for the second quarter running after eight consecutive quarters of
year-over-year (y/y) deceleration. Amazon Web Services (AWS) growth appeared
to have bottomed, while AI-driven strength at Microsoft contrasted with some
softness at Google. Customers continued to 'optimise' their spend across all
cloud providers, but new initiatives began ramping up to help offset this.
Ongoing optimisations weighed on 'cloud consumption' software models such as
Snowflake and Datadog, which saw further downward resets to growth
expectations.
In application software, larger enterprise-focused companies such as
ServiceNow and Adobe continued to deliver steady results in a challenging
environment while the demand backdrop for SMB (small and medium-sized
business)-focused players such as HubSpot and Paycom Software appeared to
deteriorate. Application software companies announced (and in some cases
brought to market) a slew of 'AI-powered' products, although few appear to be
given the full benefit of the doubt by investors (or customers) thus far.
Revenue growth in the software sector overall has been decelerating for two
years (since mid-2021), and the sector rallied from May lows as companies
rerated on the hope of a growth inflection. However, higher rates and macro
concerns soon reasserted themselves and companies have been reluctant to guide
for a meaningful reacceleration while IT budgets remain under such tight
scrutiny.
Cybersecurity was a bright spot as budgets remain strong and the increasingly
sophisticated and ever-evolving nature of cyberattacks enabled by AI will
require new tools and capabilities to defend against them. We have also seen
the first movements on AI regulation. The European Union announced the AI Act
in June 2023, which seeks to take a risk-based approach to AI regulation,
including the banning of "unacceptable risk" activities such as cognitive
manipulation of people, social scoring and facial recognition. President Biden
issued an executive order at the end of the period which established new
standards for safety and security, in an attempt to reduce risks posed by AI
and establish a threshold for chip processing power above which there are
disclosure requirements.
In the internet sector, the largest e-commerce players (Amazon and Shopify)
continued to consolidate market share gains and deliver strong results as the
online consumer remained resilient while a higher cost of capital has
decimated smaller peers (a dynamic which helped other 'vertical leaders' such
as Uber Technologies). Similarly, the largest advertising networks (Meta
Platforms (Facebook)), Alphabet (Google) benefited from easy year-over-year
comparators and the ongoing impact of their AI investments, for example in ad
targeting and campaign optimisation. Profitability also notably improved for
the larger players as the effect of earlier workforce reductions and tighter
cost management had a positive impact on margins. Smaller players struggled,
especially those with weaker balance sheets or aggressive online Chinese
competition, such as Match.com and Etsy. Travel spending was robust as the
post-Covid boom showed little sign of subsiding during the summer months,
although both Booking.com and Expedia Group called out some weakness in travel
trends in early October.
Interest rate-sensitive subsectors such as fintech were most challenged during
the half year. The Global X Fintech ETF declined -7% as both cyclical factors
(higher rates; credit cycle concerns) and structural questions (elevated
competitive intensity; sustainability of growth) weighed on the sector.
The IPO market tentatively reopened during the half-year period, as the high
profile ARM IPO raised c$5.2bn. There was a smattering of other noteworthy
technology IPOs (Instacart; Klaviyo; Kokusai Electric) but capital markets
activity remained fairly subdued overall. Venture capital funding is trending
to be c40% down y/y in 2023, although AI-based venture funding has been
robust.
Portfolio performance
The Trust modestly underperformed its benchmark, with the net asset value
(NAV) per share increasing by +12.1% during the first half versus +12.8% for
the sterling-adjusted Dow Jones Global Technology Index. While growth
outperformed value during the period, this largely reflected the remarkable
performance of a select group of US mega-cap stocks which delivered strong
positive returns in contrast with moribund or even negative returns in other
geographies and market-cap tiers. Although the Trust benefited from large
absolute positions in a number of these stocks, it remains structurally
underweight in large-caps in favour of growthier small and mid-caps. We were
pleased the Trust delivered top quartile performance versus our Lipper peer
group for the fiscal half year and calendar year to date, although this
undoubtedly speaks to a challenging environment for most active managers
against a cap-weighted benchmark firing on most cylinders. Beyond the
divergence in large and small-cap stocks, the most significant detractor to
relative performance was our average cash position of 5.5% and NDX (NASDAQ
100) put options which cost 56bps and 24bps respectively. However, stock
selection was positive in both the US and Europe - helped by significant
exposure to AI-related names - despite pronounced outperformance of mega-cap
stocks. The Trust's share price advanced by 10.6%, reflecting the 12.1% 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 3.04 million
shares during the period.
The half year proved an active one for the portfolio as we rotated decisively
towards AI as a primary investment theme. This was mainly focused within the
semiconductor subsector where we initiated new positions in memory-related
assets (such as Micron Technology and Rambus), advanced packaging (BE
Semiconductor Industries), testing (Advantest; Camtek) and EDA software
(Cadence Design Systems; Synopsys). We also made a series of investments in
smaller Asian component and materials companies that we believe have a more
significant role to play in AI chip and server manufacturing than they did
during the cloud era. In addition, we recalibrated our software exposure
towards companies which appear able to monetise AI within their existing
offerings (Adobe; Monday.com) as well as adding several data-related assets
(Datadog; Teradata) that should benefit from the growth in AI-related
workloads and the need for better data. We also initiated positions in several
idiosyncratic longer-duration assets with an AI angle (Evotec; Oxford Nanopore
Technologies) following significant share price weakness largely related to
higher risk-free rates.
In contrast with AI-related assets, where demand for servers, chips and
related components increased significantly, sharply higher interest rates and
a disappointing Chinese post-Covid recovery trajectory began to negatively
impact demand in a number of other subsectors. As a result, we significantly
reduced our exposure to interest rate-sensitive areas such as fintech (exited
Adyen, GMO Payment Gateway), and alternative energy (sold Enphase Energy,
SolarEdge Technologies). We also reduced our exposure to electric vehicle (EV)
and related assets as higher interest rates began to negatively impact EV
demand via increased financing costs. We exited Chinese EV maker BYD and
several auto-exposed semiconductor suppliers (Infineon Technologies; ON
Semiconductor). The faltering Chinese economic recovery resulted in us also
exiting Alibaba Group Holding as well as reducing our exposure to
robotics-related companies (Cognex; Nabtesco). We also exited a number of
software application companies (Freshworks; Paycom Software; Smartsheet) due
to nascent concerns that AI might pose a meaningful risk to so-called 'point
solutions' relative to larger platforms. Towards the period's end, conflict in
the Middle East and some concerns around the health of the US consumer led us
to reduce travel-related names including Airbnb.
At the stock level, our zero-weight position in Broadcom* (+39%) proved the
most significant detractor to relative performance as we opted for alternative
ways to gain exposure to AI-related semiconductors. Likewise, our underweight
position in Adobe (+46%) dragged on performance following the introduction of
its Firefly AI image generation offering. Strong absolute performances from
other mega-cap holdings weighed on relative performance too, with the
combination of Alphabet (+20%), Meta Platforms (Facebook) (+30%) and Microsoft
(+14%) dragging by a combined 43bps. The combination of increased cyclical
headwinds and a crowding out of non AI-related spending (as budgets were
reallocated) resulted in weakness at a number of semiconductor and component
companies including Lattice Semiconductor (-28%) and Unimicron Technology
(-3%). The same dynamic, together with faltering Chinese demand, also impacted
robotics and automation stocks such as Keyence (-11%) and Harmonic Drive
Systems (-27%). Higher risk-free rates weighed on alternative energy holdings
such as First Solar (-19%) and Ceres Power Holdings (-43%) as yields
associated with solar and hydrogen projects became relatively less attractive.
However, weakness associated with this dramatic change of fortunes for clean
tech companies was mitigated by timely reductions and complete exits of
related holdings. Likewise, interest rate-related weakness in fintech
companies including Adyen (-57%) and GMO Payment Gateway (-48%) was
ameliorated by timely sales, although both Visa (+5%) and Mastercard (+2%)
both dragged on relative performance. As ever, there were also a few genuine
disappointments at the likes of Cognex and Ceres Power Holdings, although
these were largely contained to the portfolio tail.
Although the significant outperformance of mega-cap stocks during the period
represented a meaningful headwind to our growth-centric investment approach,
the Trust benefited from positive stock selection and an overweight exposure
to the AI theme that rightly dominated returns and investment discourse during
the period. Our 6.9% average position in GPU (graphics processing unit)
chipmaker NVIDIA (+52%) versus a benchmark weighting of 6.4% delivered a
remarkable 240bps of absolute performance during the half year. However, other
AI-related assets delivered greater relative performance as the likes of Disco
(+58%) and Fabrinet (+69%) benefited from new processes and products required
by AI-related chips and modules. The portfolio also benefited from companies
exposed to AI-related data centre spending such as Arista Networks (+29%) and
Pure Storage (+53%). Cybersecurity also proved a relative bright spot within
software as budgets proved relatively robust amid several high-profile
breaches and concerns that AI is already increasing the so-called 'attack
surface' available to cyber-criminals. This, together with some valuation
recovery, resulted in strong performance contributions from a number of
cybersecurity holdings including CrowdStrike Holdings (+52%), CyberArk
Software (+36%) and Palo Alto Networks (+38%). Likewise, stabilisation of
cloud workload optimisation together with strong fundamentals and the
potential for future AI-related demand saw both MongoDB (+49%) and Amazon
(+31%) deliver strong positive returns. Finally, relative performance
benefited from a rare period of underperformance from Apple (+4%) as iPhone
fell short of expectations, largely a function of a particularly weak
smartphone market.
Market outlook
Recent months have offered investors an environment where economic growth and
index level returns have been strong but there has been a great deal of
volatility and even outright weakness beneath the surface. While the range of
macroeconomic outcomes has likely narrowed as risks around inflation and
higher rates have been (somewhat) assuaged by the decisive actions of central
bankers, political and company-specific risk have moved higher. We have seen
this clearly in third-quarter numbers where negative surprises have been
punished to the harshest degree in the past five years.
The bearish case for the market outlook has multiple strands. The most
important aspect is the potential for a recession in 2024 as the lagged impact
of aggressive central bank tightening finally weighs on consumers and
companies. The duration and nature of the 'long and variable lag' with which
monetary policy is thought to act is hotly debated. There has only been one
occasion since the mid-1950s where a recession began within 18 months of a Fed
tightening cycle, the most recent of which started on 17 March 2022. A
recession before this point would be historically early - especially as fiscal
expansion, excess consumer savings and unusual post-Covid employment dynamics
have provided significant support to growth. The next six months are
empirically the most likely recessionary period, according to Deutsche Bank.
Viewed through another lens, the difference between six-month and 10-year US
government bond yields turned negative (an 'inverted' yield curve) in July
2022, which, on a median basis, has historically signalled a recession 11
months ahead.
The impact of the most aggressive rate hike cycle for a generation and
quantitative tightening (the shrinking of the Fed's balance sheet) is weighing
on a wide range of forward-looking economic indicators. The Conference Board
Leading Economic Indicators have moved into recession territory and
year-over-year money supply growth (M2) is still firmly negative. Lending
standards as measured by the Fed's Senior Loan Office Opinion Survey are still
at levels typically only seen when a recession is imminent and junk bond
yields have touched 9%. As funding costs remain high, marginal investments
become less attractive and nominal growth will be slower. At the time of
writing, the Fed futures market is pricing in -c100bps of rate cuts in 2024 as
the Fed cuts rates in response to softening incoming data to stave off or at
least limit the severity of a recession.
Geopolitical risk represents another potential headwind to market sentiment as
the Russia/Ukraine and Israel/Hamas conflicts are unlikely to be resolved
quickly. The Covid experience laid bare the fragility of global supply chains
and the Ukraine war reminded policymakers and market participants alike of the
economy's sensitivity to higher energy prices. As much as 17% of global oil
production and 19% of global liquid natural gas flows through the Strait of
Hormuz between Iran and Oman, so a broadening of conflict in the Middle East
could have significant ramifications. China/US relations remain under strain,
especially regarding the availability of leading-edge AI technology.
Disappointing Chinese economic recovery post-reopening and a highly levered
property market bring further political and economic fragility.
Expanding fiscal deficits (partly due to higher interest servicing costs)
could continue to put upward pressure on rates globally and downward pressure
on sovereign bonds. Goldman Sachs estimates US federal interest expense will
increase from 2% of GDP in 2022 to 3% in 2024 and 4% by 2030, and (unlike when
interest costs rose in the 1980s and early 1990s), there is little appetite to
reduce the primary (ex-interest) deficit given congressional gridlock and
other policy priorities mainly at odds with balanced budgets. At current
prices, 2023 would be the first time in the history of the US republic that
the value of US Treasuries has fallen for three consecutive years. Indeed, the
US government deficit was 8% of GDP in 3Q23, the largest in history outside
periods of war or recession, and the debt-to-GDP ratio is the same as at the
end of World War Two. The US is also going into an election year (as are
countries covering 80% of the global equity market cap), which have not been
that supportive of equity returns in recent decades: since 1984, US election
year returns have averaged 4%, with technology the worst performing sector.
Significantly higher risk-free rates have also begun to challenge business
models built on the availability of cheap debt. This has already been
reflected in the equity market, as high quality, low leverage and low
volatility factors have led under the surface. Higher rates have also created
greater competition to equity that were less appealing during the recent low
interest rate era, including cash on deposit, money market funds and financial
instruments sitting higher up the capital structure, such as corporate debt
and convertible bonds.
Nor are equities particularly cheap, with the S&P 500 trading at 17.8x
forward earnings estimates versus the 10-year average of 17.5x. This might be
the higher end of the future range if we are entering a period of structurally
higher interest rates, which is possible given structurally higher fiscal
deficits, structurally higher investment levels (reshoring; balkanisation of
supply chains; clean energy transition) and aging populations (potentially
lower savings rates; higher social and healthcare costs).The equity market may
also be overearning given cycle-high operating margins and debt refinancing
rates are now more than double the coupon of debt that has already been
issued.
However, all is not lost. To date, the Fed has so far been able to rebalance
the labour market without driving up unemployment significantly or sending the
economy into recession, strengthening the case for so-called 'immaculate
disinflation'. For example, the 'jobs/workers gap' (the difference between the
number of job openings in the previous month and unemployed workers in the
current month) has declined to reach c2.6 million from c5 million at the start
of the calendar year and is trending towards the roughly two million level
consistent with 2% inflation, as estimated by Goldman Sachs. US wage growth
has fallen by more than 1.5pts to 4.2% annualised. Softer October payrolls
also helped as headline jobs missed and the number of industries seeing
employment decline stepped up to 44% from 32% in September.
There is also limited evidence of significant distress brought on by the
lagged impact of rate rises on corporate balance sheets, even if delinquencies
and defaults are ticking higher. This may reflect the fact that three-quarters
of S&P 500 debt is long-term fixed (almost double pre-Global financial
crisis levels), as are 85% of US mortgages, suggesting the lag from rate rises
to real world impact may have extended or become less direct. Borrowing costs,
defaults and the percentage of companies rated BBB or lower by Moody's are
rising, but from extremely low levels, while less than $150bn of the $3trn
junk bond and leveraged loan market needs to be refinanced in the next two
years.
Sentiment remains supportive too, with the most recent Bank of America's
Global Fund Manager Survey indicating that average cash levels remain above
5%, which has historically been a good contrarian 'buy' signal. Negative
sentiment is not limited to professional investors. The American Association
of Individual Investors (AAII) bull/bear ratio sits below 0.5, which has
historically presaged average returns of +8.3% and +13% for the S&P 500
for the following six and 12-month periods respectively.
It would also be remiss of us not to mention some potential early signs that
technology adoption is having a positive impact on macroeconomic prospects.
Third-quarter productivity (a measure of output per labour hour) positively
surprised for the second consecutive quarter. Strong economic growth is not
inflationary if it is driven by productivity and trend productivity growth of
1.5-2% means a target of 3.5-4% wage growth would be consistent with the Fed's
2% inflation target. Goldman Sachs has estimated generative AI will affect
productivity sufficiently within their 10-year forecast horizon to bring a
potential boost of 10-15% to global GDP cumulatively. A combination of the
advent of AI and structural labour shortages as developed economy populations
age might be sufficient to stimulate a productivity boom and produce
disinflationary economic growth - a supportive backdrop for equities.
More importantly, whether there is a recession or not and what equity markets
do over the next six to 12 months perhaps misses the point. Astounding new
innovations such as AI and the advances brought by GLP-1 drugs augur well for
a longer-term innovation-led growth and prosperity cycle. Perhaps the post-WW2
period provides a helpful analogy. At that time, there was a period of
economic rebalancing including a shallow recession in 1948-49 as the US
economy transitioned from a wartime economy to a peacetime one. The slowdown
was brief and mild, and there was a significant shift to a new rates regime as
long-term bonds - capped during wartime - were allowed to trade freely from
1951. However, the combination of economic rebalancing and a shift to a higher
rate environment in the context of a US government debt-to-GDP peak in 1946 at
118%, did not preclude strong equity market returns over the next five (+55%)
and 10 years (+203%). This was a time of rapid technological and social
change, and a transition to a structurally higher rate environment, but
1949-1956 and 1957-1961 delivered two strong equity bull markets. Longer term,
there is a good case that the same will prove true of the post-Covid period.
Technology outlook
A more uncertain economic environment and the stronger US dollar are exerting
downward pressure on worldwide IT spending this year, which is now expected to
grow 3.5% in 2023, in dollar terms, compared to 5.5% anticipated in April.
This moderating outlook has been evident in recent corporate results with the
S&P technology sector now expected to deliver revenue and earnings growth
of 2% and 3.5% in 2023. However, early forecasts for 2024 look significantly
more encouraging with current expectations for IT spending (+8%) commensurate
with S&P 500 technology revenue and earnings forecasts of 8.8% and 15.8%
respectively. While these expectations are likely to remain
macroeconomic-sensitive, AI spending should prove more resilient given 70% of
CIOs believe (as we do) that generative AI (GenAI) is a game-changing
technology, with 55% of them planning to deploy it over the next two years
compared to only 9% today. Net profit margins are likely to remain a key focus
for earnings as they remain above long-term averages, while recent dollar
strength represents a potential headwind for technology estimates given the
sector's international exposure of 58% (the highest of any sector) versus 40%
for the market.
The outperformance of technology and excitement around GenAI has seen the
forward P/E of the technology sector meaningfully expand from c20x at the
start of the calendar year to c24x at the end of October - ahead of both five
(23x)) and 10-year (20x) averages. The premium enjoyed by the sector has also
expanded, with technology stocks today trading at 1.4x the market multiple,
slightly above the post-bubble range of between 0.9-1.4x. While this may
suggest less valuation upside in the near term, relative downside risk may
also prove limited in a post-ChatGPT world with market setbacks bought by
investors later to this important investment theme. In addition to AI as a
driver, the technology sector remains exceptionally well capitalised which, in
a challenging rate environment, should insulate it against refinancing and/or
bankruptcy risk. It is also worth noting that despite the excitement around
GenAI, we remain far from valuations levels seen during the dot.com bubble,
when the technology sector traded at more than twice the S&P 500 multiple.
We are also encouraged by the remarkable valuation retracement of
next-generation technology stocks that has characterised the post-pandemic,
post-Fed pivot world. Within software, the average EV/NTM (enterprise
value/next 12-month) sales multiple of above 30% revenue growth companies has
fallen back to 6.7x, down from a peak of 34.5x and below both pre-Covid five
and 10-year averages of 8.6x and 8.1x respectively. With the overall software
market trading at c5.5x EV/NTM sales, the c20% premium for this much faster
growing group of companies is significantly below the five and 10-year
pre-Covid average premium of 53% and 68% respectively. While we are excited
about the longer-term opportunity presented by this valuation convergence, it
also reflects today's more hostile market environment which has shortened
investment duration and recalibrated investor preference towards profits over
revenue growth. This is apparent when looking at the subset of unprofitable
software companies which today trade at just 3.2x EV/NTM sales - a c40%
discount to overall software valuations, a stark contrast to the large premium
they enjoyed during 2020-21 when interest rates were near zero. We are also
mindful of the risk posed by AI to 'point solution' companies relative to
incumbents/platform companies that look better placed to absorb the costs and
get monetisable AI products to market. This unusual dynamic (empirically,
unencumbered newer companies have tended to benefit most from technology
change) might explain the unusual absence of strategic M&A despite the
material valuation correction.
AI continues to dominate technology performance at both headline and stock
level. While it is still early days, we are seeing encouraging signs for the
adoption of AI and the impact of the AI transformation on companies up and
down the supply chain. AI services accounted for 3pts of Microsoft Azure's y/y
growth, compared to just 1pt last quarter, indicating a $1.5bn revenue
run-rate. Microsoft Azure-OpenAI customers increased to 18,000 from 11,000
last quarter, and 40% of the Fortune 100 are trialling the M365 Copilot
product (which launched on 1 November). Meta Platforms spoke to a mid-single
digit increase in time spent on their main platforms due to AI-powered
recommendation improvements. Meanwhile Alphabet said generative AI projects on
its AI Vertex platform were up 7x from last quarter.
This is unsurprising to us given early productivity gains across a range of
tasks and applications (estimated at between 30-50%) and broad GenAI
applicability since a majority of jobs in advanced economies are knowledge
workers. Despite this, there has been a healthy tempering of expectations for
some of the leading suppliers into the AI infrastructure buildout after
earlier exuberance. While tighter US export restrictions may have played a
part in this, we anticipate continued strong demand and as such see this as a
buying opportunity given the build out of the new AI computing stack remains
in its infancy. According to Gartner, 73% of CIOs plan to increase AI
investments in 2024.
During Q3 earnings season, we moved to a slightly more fully invested position
(c.4% cash at the end of November). Given elevated levels of geopolitical risk
and the fact that our portfolio beta is naturally higher than the benchmark
due to our growth-focused investment approach, we continue to hold NASDAQ
Index put options (to help bring the beta of the portfolio closer to the
benchmark in the event of a sharp drawdown, rather than to hedge absolute
downside risk). However, our overarching focus remains on positioning the
portfolio in favour of companies that should prove important AI enablers and
beneficiaries. At the time of writing, we believe that more than
three-quarters of the portfolio is explained by AI enablers and beneficiaries.
Technology risks
In addition to market-related risks already highlighted, there are other risks
to our constructive medium-term view. As in previous years, there are downside
risks to technology spending in the event of weaker macroeconomic trends or
should CEO confidence meaningfully deteriorate. Likewise, earnings estimates
are likely to remain subject to macroeconomic turbulence with margins
potentially at risk given their recent recovery following earlier
cost-cutting. A weaker macroeconomic environment and/or higher interest rates
could extend the current semiconductor downturn, particularly within
rate-sensitive areas such as automotive. It might also challenge cloud
spending growth that has finally begun to stabilise following multiple
quarters of post-pandemic optimisation.
Valuation remains a key risk too, particularly following the rerating in
technology stocks this year, while higher risk-free rates are likely to
constrain the magnitude of any recovery in longer-duration stocks. As in
previous years, regulation remains a risk, with the current antitrust case
brought against Alphabet by the Department of Justice (DoJ) potentially an
important moment for both Apple and Alphabet, as well as having implications
for other natural monopolies within our sector. We remain hopeful that
worst-case outcomes will continue to be averted, reflecting a divided Congress
and the fact that US technology companies represent the vanguard in the
emerging AI battleground with China. Instead, deteriorating US/Sino relations
may represent a more significant risk, coalescing around the supply of AI
chips to China. We are hopeful this remains contained, but Taiwan -
responsible for producing c90% of leading-edge semiconductors - represents a
critical geopolitical fault line and could potentially impact a significant
portion of our portfolio.
Finally, we should highlight the risk associated with disappointing AI
adoption given its centrality to technology performance during 2023. This
could come in the form of regulation designed to stymie change associated with
generative AI or, more likely, in the event that AI monetisation at Microsoft,
Adobe and other software companies proves disappointing. Although a
monetisation delay is unlikely to derail the AI story, it would represent a
significant setback and would likely dampen excitement around the timing, if
not the ultimate size, of the AI opportunity.
Concentration risk
In our last Annual Report, we 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, this risk has not diminished. At the half year, our three
largest holdings - Apple, Microsoft, and Alphabet - represent c28% and c42% of
our NAV and benchmark respectively, while our top five holdings (which
includes NVIDIA and Meta Platforms (Facebook)) represent c39% and c53% 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, or if we believe there are more
attractive risk/reward profiles elsewhere. However, concentration does not
appear to be entirely driven by ebullient valuations; the Magnificent Seven
represents 29% of the S&P 500 market cap but account for 18.7% of 2023
consensus EPS and 20% of 2024 consensus EPS. Likewise, according to Bloomberg,
the 'Magnificent Seven' Index trades at 27.5x 2024 P/E ratio, which does not
seem excessive for c20% earnings growth CAGR.
The past six months support our earlier view that AI plays well into mega-caps
given their significant scale advantages. That said, we still find it very
difficult to argue for holding much above 10% in any individual stock as we
struggle with the idea that we are reducing risk by making the portfolio
evermore concentrated. Instead, 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.
Conclusion
Twelve months ago, we argued that the current inflationary period might not
represent a change in investment regime as others were arguing at the time.
Instead, we suggested it might be akin to the immediate post-WW2 years - a
Covid rather than war-related disequilibrium resolvable with time and enough
policymaker 'medicine'. With inflation heading lower without yet taking the
global economy with it, the case for 'immaculate disinflation' looks stronger
than it did last year. While debate remains about whether the rate tightening
cycle is complete, the proverbial 'wall of worry' has shifted towards
geopolitics and primary fiscal deficits, both of which could delimit
policymaker latitude to deliver the monetary adjustments necessary to avoid a
hard landing. We are hopeful that decisive US action in the eastern
Mediterranean will prevent the Israel/Hamas conflict from broadening, while
the Saudi/Iran divide makes a 1973 rerun meaningfully less likely.
The case for renewed disinflation has also received a significant boost in the
form of generative AI. We believe that after years of impressive gains in
narrow fields, the recent advent of the transformer model is likely to prove
the 'Bessemer moment' for AI. If so, we are likely to experience remarkable
productivity gains over the coming years which may exert significant downward
pressure on prices. Following the advent of cheap steel, thanks to Henry
Bessemer, US prices fell on average by 4% per annum during the 1870s, a period
known as the Great Deflation. However, what followed was a pronounced and
prolonged rise in real wages so profound that it "gave birth to the middle
class". Today, policymakers are focused on stubbornly tight labour markets
just as AI threatens to disrupt as many as 300 million jobs. While this could
yet take the form of dystopic science fiction and even civilisational decline,
remarkable early gains from GenAI and the broad applicability of this nascent
GPT (general purpose technology) suggests to us that we might instead be on
the cusp of the "best decade ever" for productivity growth.
Ben Rogoff & Ali Unwin
11 December 2023
PORTFOLIO BREAKDOWN
Market Capitalisation of underlying investments
% of invested assets Less than $1bn $1bn-$10bn Over $10bn
as at 31 October 2023 0.7 9.9 89.4
as at 30 April 2023 0.4 7.5 92.1
% of Net Assets as at
Breakdown of Investments by Geographic Region* 31 October 2023 30 April 2023
North America 75.3 72.8
Asia Pacific (ex-Japan) 9.4 10.4
Japan 4.4 4.4
Europe (inc - UK) 3.8 3.9
Middle East & Africa 1.3 1.2
Latin America 0.0 0.7
* % 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 2023**
North Europe Pacific Total Total
America (inc. (inc. Middle 31 October 30 April
Latin America) East) 2023 2023
% % % % %
Software 25.4 - 1.3 26.7 24.1
Semiconductors & Semiconductor Equipment 15.6 3.2 5.7 24.5 24.0
Interactive Media & Services 12.1 - 1.3 13.4 11.7
Technology Hardware, Storage & Peripherals 9.5 - 3.0 12.5 13.4
IT Services 3.8 0.2 0.2 4.2 4.0
Broadline Retail 2.3 - - 2.3 3.3
Electronic Equipment, Instruments & Components - - 2.1 2.1 1.4
Communications Equipment 2.0 - - 2.0 1.4
Entertainment 1.2 - - 1.2 1.0
Financial Services 1.0 - - 1.0 3.3
Machinery - - 0.9 0.9 0.9
Automobiles 0.7 - - 0.7 1.1
Healthcare Equipment & Supplies 0.2 - 0.4 0.6 1.0
Aerospace & Defence 0.5 - - 0.5 0.2
Healthcare Technology 0.5 - - 0.5 0.4
Ground Transportation 0.5 - - 0.5 0.9
Life Sciences Tools & Services - 0.3 - 0.3 -
Hotels, Restaurants & Leisure - - 0.1 0.1 1.2
Chemicals - - 0.1 0.1 -
Electrical Equipment - 0.1 - 0.1 0.1
Total investments (£2,912,344,000) 75.3 3.8 15.1 94.2 93.4
Other net assets (excluding loans) 6.8 - 0.7 7.5 8.4
Loans (1.0) - (0.7) (1.7) (1.8)
Grand total (net assets of £3,093,037,000) 81.1 3.8 15.1 100.0 -
At 30 April 2023 (net assets of £2,828,141,000) 78.9 4.8 16.3 - 100.0
* * Classifications derived from 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.
PORTFOLIO OF INVESTMENTS
Ranking Value of holding % of net assets
£'000
31 30 Apr Stock Sector Region* 31 30 31 30
Oct 2023 October April October April
2023 2023 2023 2023 2022
1 (1) Microsoft Software North America 336,621 302,791 10.9 10.7
2 (2) Apple Technology Hardware, Storage & Peripherals North America 252,687 284,199 8.2 10.0
3 (3) Alphabet Interactive Media & Services North America 229,483 174,388 7.4 6.2
4 (4) Nvidia Semiconductors & Semiconductor Equipment North America 219,855 130,855 7.1 4.6
5 (7) Meta Platforms Interactive Media & Services North America 125,692 82,047 4.1 2.9
6 (5) Advanced Micro Devices Semiconductors & Semiconductor Equipment North America 96,889 94,299 3.1 3.3
7 (6) Samsung Electronics Technology Hardware, Storage & Peripherals Asia Pacific 87,960 83,894 2.8 3.0
8 (8) Taiwan Semiconductor Semiconductors & Semiconductor Equipment Asia Pacific 77,516 61,421 2.5 2.2
9 (11) Amazon.com Broadline Retail North America 69,876 46,756 2.3 1.7
10 (9) ServiceNow Software North America 61,156 51,884 2.0 1.8
Top 10 investments 1,557,735 50.4
11 (13) Arista Networks Communications Equipment North America 57,037 38,201 1.8 1.4
12 (14) CrowdStrike Software North America 56,685 36,041 1.8 1.3
13 (10) ASML Semiconductors & Semiconductor Equipment Europe 51,760 49,941 1.7 1.8
14 (18) Palo Alto Networks Software North America 45,849 34,847 1.5 1.2
15 (35) MongoDB IT Services North America 43,402 22,107 1.4 0.8
16 (29) Disco Corporation Semiconductors & Semiconductor Equipment Asia Pacific 42,805 26,960 1.4 1.0
17 (59) Pure storage Technology Hardware, Storage & Peripherals North America 41,295 10,694 1.3 0.4
18 (28) Snowflake IT Services North America 41,103 27,622 1.3 1.0
19 (-) Synopsys Software North America 37,059 - 1.2 -
20 (16) KLA-Tencor Semiconductors & Semiconductor Equipment North America 33,259 35,072 1.1 1.2
Top 20 investments 2,007,989 64.9
21 (-) Adobe Software North America 31,400 - 1.0 -
22 (24) Monolithic Power Systems Semiconductors & Semiconductor Equipment North America 28,030 32,453 0.9 1.1
23 (15) Tencent Interactive Media & Services Asia Pacific 27,950 35,666 0.9 1.3
24 (60) Intuit Software North America 26,240 10,538 0.8 0.4
25 (31) CyberArk Software Software Asia Pacific 25,419 24,330 0.8 0.9
26 (-) Micron Technology Semiconductors & Semiconductor Equipment North America 25,388 - 0.8 -
27 (-) NetFlix.Com Entertainment North America 24,818 - 0.8 -
28 (-) Zscaler Software North America 24,491 - 0.8 -
29 (64) ASM International Semiconductors & Semiconductor Equipment Europe 23,648 9,614 0.8 0.3
30 (12) HubSpot Software North America 23,498 45,203 0.8 1.6
Top 30 investments 2,268,871 73.3
31 (26) Shopify IT Services North America 23,230 29,497 0.8 1.0
32 (23) Qualcomm Semiconductors & Semiconductor Equipment North America 22,893 32,525 0.7 1.2
33 (50) Tesla Motors Automobiles North America 21,769 13,358 0.7 0.5
34 (27) Salesforce.com Software North America 21,657 27,910 0.7 1.0
35 (49) Marvell Technology Semiconductors & Semiconductor Equipment North America 21,412 13,879 0.7 0.5
36 (-) Fabrinet Electronic Equipment, Instruments & Components Asia Pacific 20,267 - 0.7 -
37 (-) Rambus Semiconductors & Semiconductor Equipment North America 20,157 - 0.7 -
38 (47) eMemory Technology Semiconductors & Semiconductor Equipment Asia Pacific 19,737 14,524 0.6 0.5
39 (-) Unimicron Technology Electronic Equipment, Instruments & Components Asia Pacific 18,695 - 0.6 -
40 (46) Pinterest Interactive Media & Services North America 17,683 15,134 0.6 0.5
Top 40 investments 2,476,371 80.1
41 (17) Mastercard Financial Services North America 16,994 34,908 0.5 1.2
42 (38) Dynatrace Software North America 16,240 19,644 0.5 0.7
43 (74) Axon Enterprise Aerospace & Defence North America 15,955 5,357 0.5 0.2
44 (-) Datadog Software North America 15,375 - 0.5 -
45 (61) Veeva Systems Healthcare Technology North America 15,063 10,390 0.5 0.4
46 (-) Advantest Semiconductors & Semiconductor Equipment Asia Pacific 14,534 - 0.5 -
47 (30) Uber Technologies Ground Transportation North America 13,503 25,788 0.5 0.9
48 (48) Hoya Healthcare Equipment & Supplies Asia Pacific 13,392 14,264 0.4 0.5
49 (57) E Ink Electronic Equipment, Instruments & Components Asia Pacific 13,370 12,028 0.4 0.4
50 (-) BE Semiconductor Industries Semiconductors & Semiconductor Equipment Europe 13,168 - 0.4 -
Top 50 investments 2,623,965 84.8
51 (21) Workday Software North America 13,087 33,429 0.4 1.2
52 (66) Elastic Software North America 12,518 9,134 0.4 0.3
53 (42) Roblox Entertainment North America 12,418 17,444 0.4 0.6
54 (43) Baidu Interactive Media & Services Asia Pacific 11,758 16,616 0.4 0.6
55 (37) Lattice Semiconductor Semiconductors & Semiconductor Equipment North America 11,455 20,572 0.4 0.7
56 (79) GitLab Software North America 11,218 4,063 0.4 0.1
57 (53) Harmonic Drive Systems Machinery Asia Pacific 10,536 12,777 0.4 0.5
58 (82) Braze Software North America 10,495 3,668 0.3 0.1
59 (25) Cloudflare IT Services North America 10,060 29,973 0.3 1.0
60 (-) Teradata Software North America 9,488 - 0.3 -
Top 60 investments 2,736,998 88.5
61 (-) Cadence Design System Software North America 9,327 - 0.3 -
62 (33) Tokyo Electron Semiconductors & Semiconductor Equipment Asia Pacific 9,302 23,016 0.3 0.8
63 (41) Confluent Software North America 8,867 18,140 0.3 0.6
64 (-) STMicroelectronics Semiconductors & Semiconductor Equipment Europe 8,707 - 0.3 -
65 (-) Minebea Machinery Asia Pacific 8,295 - 0.3 -
66 (65) Flywire Financial Services North America 8,048 9,503 0.3 0.3
67 (58) Kinaxis Software North America 7,560 11,909 0.2 0.4
68 (51) Intuitive Surgical Healthcare Equipment & Supplies North America 7,555 13,230 0.2 0.5
69 (-) Monday.com Software Asia Pacific 7,478 - 0.2 -
70 (-) DoubleVerify Software North America 7,160 - 0.2 -
Top 70 investments 2,819,297 91.1
71 (22) Visa Financial Services North America 6,739 33,156 0.2 1.2
72 (32) Keyence Electronic Equipment, Instruments & Components Asia Pacific 6,643 23,561 0.2 0.8
73 (71) Fuji Machine Manufacturing Machinery Asia Pacific 6,642 5,680 0.2 0.2
74 (-) Lite-On Technology Technology Hardware, Storage & Peripherals Asia Pacific 6,521 - 0.2 -
75 (-) JFrog Software Asia Pacific 6,182 - 0.2 -
76 (76) Zuken IT Services Asia Pacific 5,253 5,187 0.2 0.2
77 (-) Wise IT Services Europe 4,858 - 0.2 -
78 (-) Ciena Communications Equipment North America 4,565 - 0.2 -
79 (-) Oxford Nanopore Technologies Life Sciences Tools & Services Europe 4,443 - 0.2 -
80 (69) First Solar Semiconductors & Semiconductor Equipment North America 4,328 7,708 0.1 0.3
Top 80 investments 2,875,471 93.0
81 (-) Ferrotec Semiconductors & Semiconductor Equipment Asia Pacific 3,940 - 0.1 -
82 (45) Trip.Com Hotels, Restaurants & Leisure Asia Pacific 3,853 15,415 0.1 0.5
83 (-) Micronics Japan Semiconductors & Semiconductor Equipment Asia Pacific 3,613 - 0.1 -
84 (-) Hamamatsu Photonics Electronic Equipment, Instruments & Components Asia Pacific 3,562 - 0.1 -
85 (-) MEC Chemicals Asia Pacific 3,502 - 0.1 -
86 (56) Atlassian Software Asia Pacific 3,115 12,039 0.1 0.4
87 (-) Camtek Semiconductors & Semiconductor Equipment Asia Pacific 3,031 - 0.1 -
88 (-) Ansys Software North America 3,001 - 0.1 -
89 (84) Seeing Machines Electronic Equipment, Instruments & Components Asia Pacific 2,885 3,265 0.1 0.1
90 (-) Kokusai Electric Semiconductors & Semiconductor Equipment Asia Pacific 2,556 - 0.1 -
Top 90 investments 2,908,529 94.0
91 (-) Evotec OAI Life Sciences Tools & Services Europe 2,282 - 0.1 -
92 (85) Ceres Power Electrical Equipment Europe 1,532 2,703 0.1 0.1
93 (87) Cermetek Microelectronics Electronic Equipment, Instruments & Components North America 1 1 - -
Total equities 2,912,344 94.2
Other net assets* 180,693 5.8
Total net assets 3,093,037 100.0
Note: Asia Pacific includes Middle East and North America includes Latin
America.
*Refer to Balance Sheet below for more details.
CORPORATE MATTERS
THE BOARD
There have been no changes to the membership of the Board in the six months
ended 31 October 2023.
As noted in the Company's Annual Report for the year ended 30 April 2023,
Charlotta Ginman stepped down as Audit Chair of the Company on 31 October 2023
and was succeeded by Jane Pearce as part of a smooth and orderly transition.
Charlotta remains on the Board as a non-executive Director of the Company and
will step down from the Board following nine years' service at the AGM in
September 2024.
Biographical details of all Directors are available on the Company's website
and are provided in the Company's latest Annual Report for the year ending 30
April 2023.
GEARING
As at 31 October 2023, the Company had two, two-year fixed rate, term loans
with ING Bank N.V expiring in September 2024 (JPY 3.8bn and USD36m). The JPY
loan has been fixed at an all-in rate of 1.13% pa and the USD loan has been
fixed at an all-in rate of 5.43% pa. The prior loans were repaid in full at
expiry.
SHARE BUY-BACKS
As described in the full year report and accounts for the year ending 30 April
2023, the Board continually monitors the discount at which the Company's
ordinary shares trade in relation to the Company's underlying NAV. Discounts
across the whole of the investment trust sector continue to widen due to the
challenging market conditions and, unfortunately, the discount of the Company
has also been impacted. 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 actions. The Company does not have
an absolute target discount level at which it buys back shares but will
continue to buy back shares when deemed appropriate.
In the six months to 31 October 2023, the Company has repurchased a total of
3,036,287 shares into treasury representing 2.2% of the total issued capital.
Since the period end to 8 December 2023, we have bought back a further 589,658
shares. The number of repurchased shares now in treasury is 14,655,401
representing 10.7% of issued share capital.
AUDITOR
KPMG LLP were re-appointed as the Company's external auditor at the AGM held
on 7 September 2023.
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 2023. 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 2023. 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.
We continue to consider the impact of the Russian war on Ukraine as well as
the effects of the Middle East crisis which has created further market
volatility. Geopolitical events such as these are captured within the
Company's risk map and will be periodically assessed by the Board in light of
how they may affect the Company's portfolio and the economic and geopolitical
environment in which the Company operates.
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 2023 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 2023, the Board periodically monitors the
financial position of the Company and has considered for the six months ending
31 October 2023 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 facilities.
Repayment of the bank facility would equate to approximately 20.4% of the
total cash and cash equivalents readily available to the Company as at 31
October 2023.
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 for at
least 12 months. 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, which are listed in the
Directors and Contacts Section, confirm to the best of their knowledge 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 2023;
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 2023 has not been
audited or reviewed by the Company's Auditor. The Half Year Report for the
six-month period to 31 October 2023 was approved by the Board on 11 December
2023.
On behalf of the Board
Catherine Cripps
Chair
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 October 2023
(Unaudited) (Audited)
Six months ended Six months ended Year ended
31 October 2023 31 October 2022 30 April 2023
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 7,336 - 7,336 8,408 38 8,446 16,160 42 16,202
Other operating income 2 3,494 - 3,494 988 - 988 3,820 - 3,820
Gains/(losses) on investments held at fair value 3 - 341,136 341,136 - (302,041) (302,041) - (106,807) (106,807)
(Losses)/gains on derivatives 4 - (9,096) (9,096) - 8,729 8,729 - 34 34
Other currency gains 5 -- 3,889 3,889 - 15,631 15,631 - 8,409 8,409
Total income 10,830 335,929 346,759 9,369 (277,643) (268,247) 19,980 (98,322) (78,342)
Expenses
Investment management fee 6 - (12,155) (11,328) - (11,328) (21,918) - (21,918)
(12,155)
Other administrative expenses 7 (600) - (600) (630) - (630) (1,176) - (1,176)
Total expenses (12,755) - (12,755) (11,958) - (11,958) (23,094) - (23,094)
(Loss)/profit before finance costs and tax (1,925) 335,929 334,004 (2,562) (277,643) (280,205) (3,114) (98,322) (101,436)
Finance costs (937) - (937) (675) - (675) (1,598) - (1,598)
(Loss)/profit before tax (2,862) 335,929 333,067 (3,237) (277,643) (280,880) (4,712) (98,322) (103,034)
Tax (919) - (919) (1,080) - (1,080) (2,148) - (2,148)
Net (loss)/profit for the period and total comprehensive (expense)/income (3,781) 335,929 332,148 (4,317) (277,643) (281,960) (6,860) (98,322) (105,182)
(Losses)/earnings per ordinary share (basic) (pence) 9 (3.03) 269.34 266.31 (3.30) (212.28) (215.58) (5.30) (75.98) (81.28)
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 2023
Note (Unaudited) (Unaudited) (Audited)
31 October 2023 31 October 2022 30 April 2023
£'000 £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 2,912,344 2,496,672 2,640,177
Current assets
Derivative financial instruments 6,814 1,432 2,571
Receivables 30,208 24,661 20,605
Overseas tax recoverable 379 320 379
Cash and cash equivalents 8 247,526 261,919 239,096
284,927 288,332 262,651
Total assets 3,197,271 2,785,004 2,902,828
Current liabilities
Payables (53,547) (20,015) (23,842)
Bank (50,345) - -
loans*
Bank overdraft 8 (342) - -
(104,234) (20,015) (23,842)
Non-current liabilities
Bank loans* - (53,473) (50,845)
Net assets 3,093,037 2,711,516 2,828,141
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 2,952,436 2,564,591 2,683,759
Revenue reserve (137,440) (131,116) (133,659)
Total equity 3,093,037 2,711,516 2,828,141
Net asset value per ordinary share (pence) 11 2509.58 2095.24 2239.48
*As detailed within the Corporate Matters Section - see paragraph on Gearing.
Approved and authorised by the Board of Directors on 11 December 2023.
Catherine Cripps
Chair
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 October 2023
(Unaudited) Six months ended 31 October 2023
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 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
(Unaudited) Six months ended 31 October 2022
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 2022 34,329 12,802 223,374 7,536 2,899,743 (126,799) 3,050,985
Total comprehensive expense:
Loss for the period to 9 - - - - (277,643) (4,317) (281,960)
31 October 2022
Transactions with owners, recorded directly to equity:
Ordinary shares repurchased into treasury 10 - - - - (57,509) - (57,509)
Total equity at 31 October 2022 34,329 12,802 223,374 7,536 2,564,591 (131,116) 2,711,516
(Audited) Year ended 30 April 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 2022 34,329 12,802 223,374 7,536 2,899,743 (126,799) 3,050,985
Total comprehensive expense:
Loss for the year to 30 April 2023 9 - - - - (98,322) (6,860) (105,182)
Transactions with owners, recorded directly to equity:
Ordinary shares repurchased into treasury 10 - - - - (117,662) - (117,662)
Total equity at 30 April 2023 34,329 12,802 223,374 7,536 2,683,759 (133,659) 2,828,141
Note - Share capital, Capital redemption reserve, Share premium and Special
non-distributable reserve are all non-distributable. Realised distributable
capital reserve and Revenue reserve are distributable.
CASH FLOW STATEMENT
for the six months ended 31 October 2023
(Unaudited) (Audited)
Note Six months ended Six months ended Year ended
31 October 2023 31 October 2022 30 April 2023
£'000 £'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 333,067 (280,880) (103,034)
Adjustments:
(Gains)/losses on investments held at fair value through profit or loss 3 (341,136) 302,041
106,807
Losses/(gains) on derivative financial instruments 4 9,096 (8,729)
(34)
Proceeds of disposal on investments 1,140,262 1,305,771 2,311,861
Purchases of investments (1,050,305) (1,320,038) (2,266,936)
Proceeds on disposal of derivative financial instruments 4,754 42,614
46,536
Purchases of derivative financial instruments (18,093) (28,838)
(42,594)
Decrease/(increase) in receivables 371 500 (472)
Increase/(decrease) in payables* 327 (4,593) (4,580)
Finance costs* 937 675 1,598
Overseas tax (919) (1,114) (2,241)
Foreign exchange gains 5 (3,889) (15,631) (8,409)
Net cash generated/(used in) from operating activities 74,472 (8,222) 38,502
Cash flows from financing activities
Finance costs paid* (934) (553) (1,539)
Ordinary shares repurchased into treasury 10 (68,839) (57,738) (116,449)
Net cash used in financing activities (69,773) (58,291) (117,988)
Net increase/(decrease) in cash and cash equivalents 4,699 (66,513) (79,486)
Cash and cash equivalents at the beginning of the period 311,363 311,363
239,096
Effect of movement in foreign exchange rates on cash held 5 3,389 17,069 7,219
Cash and cash equivalents at the end of the period 8 247,184 261,919 239,096
Reconciliation of cash and cash equivalents
to the Balance Sheet is as follows:
Cash held at bank and derivative clearing houses 8 138,967 166,376 148,682
BlackRock's Institutional Cash Series plc (US Treasury Fund), money market 8 108,217 95,543 90,414
fund
Cash and cash equivalents at the end of the period 8 247,184 261,919 239,096
* The finance costs paid which was previously included in the cash flows from
operating activities for the six months ended 31 October 2022 has been
re-presented as a cash flow from financing activities to align with the
current period and prior year end presentation.
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 31 October 2023
1. GENERAL INFORMATION
The Financial Statements comprise the unaudited results for Polar Capital
Technology Trust Plc for the six-month period to 31 October
2023.
The unaudited Financial Statements to 31 October 2023 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 2023.
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 2023 and 31
October 2022 has not been audited. The figures and financial information for
the year ended 30 April 2023 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 2023, 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 2023.
The Directors believe it is appropriate to adopt the going concern basis in
preparing the Financial Statements. As at 31 October 2023 the Company's total
assets exceeded its total liabilities by a multiple of over 30. The Board
continually monitors the financial position of the Company. The Directors have
considered a detailed assessment of the Company's ability to meets its
liabilities as they fall due. The assessment took account of the Company's
current financial position, the ability to repay outstanding bank facilities
which fall due for repayment on 30 September 2024, its cash flows and its
liquidity position. In addition to the assessment the Company carried out
stress testing which used a variety of falling parameters to demonstrate the
effects in the Company's share price and net asset value. In light of the
results of these tests, 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 financial results
of the Company.
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.
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
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Requirement amended to disclose material accounting policies instead of 1 January 2023
Statement 2) significant accounting policies and provided guidance in making materiality
judgements to accounting policy disclosure.
Definition of Accounting Estimates (amendments to IAS 8) Introduced the definition of accounting estimates and included other 1 January 2023
amendments to IAS 8 to help entities distinguish changes in accounting
estimates from changes in accounting policy.
International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12) A mandatory temporary exception to the accounting for deferred taxes arising 1 January 2023
from the jurisdictional implementation of the Pillar Two model rules; and
disclosure requirements for affected entities to help users of the financial
statements better understand an entity's exposure to Pillar Two income taxes
arising from that legislation, particularly before its effective date.
i) At the date of authorisation of the Company's Financial Statements, the
following new or amended standard that potentially impact the Company are in
issue but are not yet effective and have not been applied in the Financial
Statements:
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
- Non-current liabilities with Covenants or before the reporting date will affect a liability's classification as
current or non-current and the disclosure requirement in the financial
- Deferral of Effective Date Amendment (published 15 July 2020) statements for the risk that non-current liabilities with covenant could
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) become repayable within twelve months.
(publicised 23 January 2020)
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 expense are paid.
2. INCOME
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2023 31 October 2022 30 April 2023
£'000 £'000 £'000
Investment income
Revenue:
Overseas dividend income 7,336 8,408 16,160
Total investment income 7,336 8,408 16,160
Other operating income
Bank interest 1,365 378 1,478
Money market fund interest 2,129 610 2,342
3,494 988 3,820
Total income 10,830 9,396 19,980
Capital:
Special dividends allocated to capital - 38 42
Total investment income allocated to capital - 38 42
Included within investment income, there are no (31 October 2022: £239,000
and 30 April 2023: £350,000) special dividends classified as revenue in
nature. No special dividends have been recognised in capital (31 October 2022:
£38,000 and 30 April 2023: £42,000).
All investment income is derived from listed investments.
3. GAINS/(LOSSES) 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 2023 31 October 2022 30 April
£'000 £'000 2023
£'000
Net gains/(losses) on disposal of investments at historic cost 100,399 (130,570) (130,861)
Transfer on disposal of investments (29,361) (3,653) (59,647)
Gains/(losses) on disposal of investments based on carrying value at previous 71,038 (134,223) (190,508)
balance sheet date
Valuation gains/(losses) on investments held during the period 270,098 (167,818) 83,701
341,136 (302,041) (106,807)
4. (LOSSES)/GAINS ON DERIVATIVES
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2023 31 October 2022 30 April
£'000 £'000 2023
£'000
(Losses)/gains on disposal of derivatives held (15,963) 9,451 5,019
Gains/(losses) on revaluation of derivatives held 6,867 (722) (4,985)
(9,096) 8,729 34
The derivative financial instruments represent the call and put options, which
are used for the purpose of efficient portfolio management. As at 31 October
2023, the Company held NASDAQ 100 Stock Index put options, and the market
value of the open put option position was £3,806,000 (31 October 2022: NASDAQ
100 Stock Index put options with a market value of £1,432,000; 30 April 2023:
NASDAQ 100 Stock Index put options with a market value of £1,559,000). As at
31 October 2023, the Company held Microsoft Corp call options and the market
value of these open call option positions was £3,008,000 (31 October 2022: No
call option held; 30 April 2023: Microsoft Corp call options with a market
value of £1,012,000).
5. OTHER CURRENCY GAINS
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2023 31 October 2022 30 April
£'000 £'000 2023
£'000
Exchange gains on currency balances 3,389 17,069 7,219
Exchange losses on settlement of loan balances - (507) (507)
Exchange gains/(losses)on translation of loan balances 500 (931) 1,697
3,889 15,631 8,409
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")
on a per share basis 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;
and
· 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 2023, there was no accrued performance fee (31 October 2022 and
30 April 2023: £nil). The quantum of any performance fee will be based on
the audited net asset value at the year end on 30 April 2024.
A fuller explanation of the performance and management fee arrangements is
given in the Annual Report.
7. OTHER ADMINISTRATIVE EXPENSES
At 31 October 2023, the Company's other administrative expenses, were
£600,000 (31 October 2022: £630,000 and 30 April 2023:
£1,176,000).
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
2023 2022 30 April
£'000 £'000 2023
£'000
Cash at bank 138,576 166,334 148,682
Cash held at derivative clearing houses 733 42 -
Money market fund 108,217 95,543 90,414
Cash and cash equivalent 247,526 261,919 239,096
Bank overdraft (342) - -
Total 247,184 261,919 239,096
As part of the Company's cash diversification strategy, as at 31 October 2023,
the Company held BlackRock's Institutional Cash Series plc - US Treasury Fund
with a market value of £108,217,000 (31 October 2022: £95,543,000 and 30
April 2023: £90,414,000), 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
2023 2022 30 April
£'000 £'000 2023
£'000
Net profit/(loss) for the period:
Revenue (3,781) (4,317) (6,860)
Capital 335,929 (277,643) (98,322)
Total 332,148 (281,960) (105,182)
Weighted average number of shares in issue during the period 124,721,854 130,792,391 129,409,889
Revenue (3.03)p (3.30)p (5.30)p
Capital 269.34p (212.28)p (75.98)p
Total 266.31p (215.58)p (81.28)p
10. SHARE CAPITAL
At 31 October 2023 there were 123,249,257 Ordinary Shares in issue (31 October
2022: 129,413,314 and 30 April 2023: 126,285,544.) During the six months ended
31 October 2023, the Company issued no Ordinary Shares (31 October 2022 and 30
April 2023: the same). During the same period, a total of 3,036,287 (31
October 2022: 2,943,112 and 30 April 2023: 6,070,882) Ordinary Shares were
repurchased into treasury at a total cost of £66,918,000 (31 October 2022:
£57,223,000 and 30 April 2023: £117,078,000).
Subsequent to the period end, and to 8 December 2023 (latest practicable
date), 589,658 Ordinary Shares were repurchased and placed into treasury at an
average price of 2367.74p per share.
11. NET ASSET VALUE PER ORDINARY SHARE
(Unaudited) (Unaudited) (Audited)
31 October 31 October 30 April
2023 2022 2023
£'000 £'000 £'000
Undiluted:
Net assets attributable to ordinary shareholders (£'000) 3,093,037 2,711,516 2,828,141
Ordinary shares in issue at end of period 123,249,257 129,413,314 126,285,544
Net asset value per ordinary share 2509.58p 2095.24p 2239.48p
12. DIVIDEND
No interim dividend has been declared for the period ended 31 October 2023,
nor for the periods ended 31 October 2022 or 30 April 2023 respectively.
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 2023.
14. POST BALANCE SHEET EVENTS
Subsequent to the period end, and to 8 December 2023 (latest practicable
date), 589,658 Ordinary Shares were repurchased and placed into treasury at an
average price of 2367.74p 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 2023 and year ended 30 April 2023.
(Unaudited) (Audited)
For the six months ended Year ended
31 October 2023 30 April 2023
Opening NAV per share
a 2239.48p 2305.13p
Closing NAV per share
b 2509.58p 2239.48p
NAV total return for the year (b/a)-1
12.1% (2.8%)
(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
2023 2023
Closing share price
a 2145.00p 1940.00p
Closing NAV per share
b 2509.58p 2239.48p
Discount of ordinary share price to the NAV per ordinary share
(a/b)-1 (14.5%) (13.4%)
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)
Charlotta Ginman (Audit Committee Chair to 31 October 2023)
Charles Park
Stephen White
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
(http://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.
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