TIDMPCT
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
(Audited)^
(Unaudited) As at 30
As at 31 April Movement
October 2023 2023 %
Total net assets GBP3,093,037,000 GBP2,828,141,000 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
Dow Jones Global Technology
Index (total return, Sterling
adjusted, with the removal
of relevant withholding
taxes) 4,064.67 3,604.43 12.8
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 30 April
2023 2023
US$ to GBP 1.2135 1.2569
Japanese Yen to GBP 183.77 171.15
Euro to GBP 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 Ed Gascoigne-Pees
Secretary
Polar Capital Technology Trust Camarco
PLC
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
Less than
% of invested assets $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 31 October 30 April
Region* 2023 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 Pacific
America (inc. Total Total
(inc. Middle 31 October 30 April
Latin America) Europe 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
(GBP2,912,344,000) 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
GBP3,093,037,000) 81.1 3.8 15.1 100.0 -
-------------------- ------------------ ------------------ --------------------- ------------------ ------------------
At 30 April 2023
(net assets
of
GBP2,828,141,000) 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
GBP'000 assets
31 30 31 30 31 30
Oct Apr October April October April
2023 2023 Stock Sector Region* 2023 2023 2023 2022
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
1 (1) Microsoft Software North America 336,621 302,791 10.9 10.7
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Technology
Hardware,
Storage &
2 (2) Apple Peripherals North America 252,687 284,199 8.2 10.0
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Interactive
3 (3) Alphabet Media & Services North America 229,483 174,388 7.4 6.2
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
4 (4) Nvidia Equipment North America 219,855 130,855 7.1 4.6
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Interactive
5 (7) Meta Platforms Media & Services North America 125,692 82,047 4.1 2.9
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Advanced & Semiconductor
6 (5) Micro Devices Equipment North America 96,889 94,299 3.1 3.3
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Technology
Hardware,
Samsung Storage &
7 (6) Electronics Peripherals Asia Pacific 87,960 83,894 2.8 3.0
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Taiwan & Semiconductor
8 (8) 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
------------------- -------------- ------------ -------- ----------- -------
Communications
11 (13) Arista Networks 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
13 (10) ASML Equipment Europe 51,760 49,941 1.7 1.8
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Palo Alto
14 (18) 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
16 (29) Disco Corporation Equipment Asia Pacific 42,805 26,960 1.4 1.0
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Technology
Hardware,
Storage &
17 (59) Pure 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 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
20 (16) KLA-Tencor 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 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Monolithic & Semiconductor
22 (24) Power Systems Equipment North America 28,030 32,453 0.9 1.1
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Interactive
23 (15) Tencent 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
CyberArk
25 (31) Software Software Asia Pacific 25,419 24,330 0.8 0.9
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
26 (-) Micron Technology 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 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
29 (64) ASM International 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
32 (23) Qualcomm 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Marvell & Semiconductor
35 (49) Technology Equipment North America 21,412 13,879 0.7 0.5
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Instruments
36 (-) Fabrinet & Components Asia Pacific 20,267 - 0.7 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
37 (-) Rambus Equipment North America 20,157 - 0.7 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
eMemory & Semiconductor
38 (47) Technology Equipment Asia Pacific 19,737 14,524 0.6 0.5
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Unimicron Instruments
39 (-) Technology & Components Asia Pacific 18,695 - 0.6 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Interactive
40 (46) Pinterest 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Aerospace &
43 (74) Axon Enterprise Defence North America 15,955 5,357 0.5 0.2
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
44 (-) Datadog Software North America 15,375 - 0.5 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Healthcare
45 (61) Veeva Systems Technology North America 15,063 10,390 0.5 0.4
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
46 (-) Advantest Equipment Asia Pacific 14,534 - 0.5 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Ground
47 (30) Uber Technologies Transportation North America 13,503 25,788 0.5 0.9
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Healthcare
Equipment
48 (48) Hoya & Supplies Asia Pacific 13,392 14,264 0.4 0.5
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Instruments
49 (57) E Ink & Components Asia Pacific 13,370 12,028 0.4 0.4
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
BE Semiconductor & Semiconductor
50 (-) Industries 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Interactive
54 (43) Baidu Media & Services Asia Pacific 11,758 16,616 0.4 0.6
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Lattice & Semiconductor
55 (37) 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Harmonic
57 (53) 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
------------------- -------------- ------------ -------- ----------- -------
Cadence
61 (-) Design System Software North America 9,327 - 0.3 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
62 (33) Tokyo Electron 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
64 (-) STMicroelectronics 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Healthcare
Intuitive Equipment
68 (51) Surgical & 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Instruments
72 (32) Keyence & Components Asia Pacific 6,643 23,561 0.2 0.8
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Fuji Machine
73 (71) Manufacturing Machinery Asia Pacific 6,642 5,680 0.2 0.2
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Technology
Hardware,
Lite-On Storage &
74 (-) Technology 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 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Communications
78 (-) Ciena Equipment North America 4,565 - 0.2 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Oxford Nanopore Life Sciences
79 (-) Technologies Tools & Services Europe 4,443 - 0.2 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
80 (69) First Solar Equipment North America 4,328 7,708 0.1 0.3
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Top 80 investments 2,875,471 93.0
------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
81 (-) Ferrotec Equipment Asia Pacific 3,940 - 0.1 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Hotels,
Restaurants
82 (45) Trip.Com & Leisure Asia Pacific 3,853 15,415 0.1 0.5
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Micronics & Semiconductor
83 (-) Japan Equipment Asia Pacific 3,613 - 0.1 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Hamamatsu Instruments
84 (-) Photonics & 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
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
& Semiconductor
87 (-) Camtek Equipment Asia Pacific 3,031 - 0.1 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
88 (-) Ansys Software North America 3,001 - 0.1 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Instruments
89 (84) Seeing Machines & Components Asia Pacific 2,885 3,265 0.1 0.1
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Semiconductors
Kokusai & Semiconductor
90 (-) Electric Equipment Asia Pacific 2,556 - 0.1 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Top 90 investments 2,908,529 94.0
------------------- -------------- ------------ -------- ----------- -------
Life Sciences
91 (-) Evotec OAI Tools & Services Europe 2,282 - 0.1 -
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electrical
92 (85) Ceres Power Equipment Europe 1,532 2,703 0.1 0.1
------ ------------------- ------------------- -------------- ------------ -------- ----------- -------
Electronic
Equipment,
Cermetek Instruments
93 (87) Microelectronics & 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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) - (12,155) (11,328) - (11,328) (21,918) - (21,918)
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
(Unaudited) (Unaudited) (Audited)
31 October 2023 31 October 2022 30 April 2023
Note GBP'000 GBP'000 GBP'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 loans* (50,345) - -
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
---------------------------------------------------------------------------------------
Special
Capital non-
Share redemption Share distributable Capital Revenue
capital reserve premium reserve reserves reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
31 October 2023 9 - - - - 335,929 (3,781) 332,148
Transactions with
owners, recorded
directly to equity:
Ordinary shares
repurchased into
treasury 10 - - - - (67,252) - (67,252)
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
---------------------------------------------------------------------------------------
Special
Capital non-
Share redemption Share distributable Capital Revenue
capital reserve premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
31 October 2022 9 - - - - (277,643) (4,317) (281,960)
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
---------------------------------------------------------------------------------------
Special
Capital non-
Share redemption Share distributable Capital Revenue
capital reserve premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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)
-------------------------- ---------------
Six months Six months
ended ended
31 October 31 October Year ended
2023 2022 30 April 2023
Note GBP'000 GBP'000 GBP'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 239,096 311,363 311,363
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 fund 8 108,217 95,543 90,414
----- ------------ ------------ ---------------
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 Requirement amended to 1 January
Policies (Amendments to disclose material accounting 2023
IAS 1 and IFRS Practice policies instead of significant
Statement 2) accounting policies and
provided guidance in making
materiality judgements
to accounting policy disclosure.
------------------------------------ -------------
Definition of Accounting Introduced the definition 1 January
Estimates (amendments to of accounting estimates 2023
IAS 8) and included other amendments
to IAS 8 to help entities
distinguish changes in
accounting estimates from
changes in accounting policy.
------------------------------------ -------------
International Tax Reform A mandatory temporary exception 1 January
- Pillar Two Model Rules to the accounting for deferred 2023
(Amendments to IAS 12) taxes arising 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 The amendments clarify 1 January
of Financial Statements that only covenants with 2024
- Non-current liabilities which an entity must comply
with Covenants on or before the reporting
- Deferral of Effective date will affect a liability's
Date Amendment (published classification as current
15 July 2020) or non-current and the
Classification of Liabilities disclosure requirement
as Current or Non-Current in the financial statements
(Amendments to IAS 1) (publicised for the risk that non-current
23 January 2020) liabilities with covenant
could become repayable
within twelve months.
-------------------------------- -------------
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 (GBP'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 For the six For the
six months ended year ended
months ended 31 October 30 April
31 October 2022 2023
2023 GBP'000 GBP'000
GBP'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: GBP239,000 and 30 April 2023: GBP350,000) special dividends
classified as revenue in nature. No special dividends have been
recognised in capital (31 October 2022: GBP38,000 and 30 April
2023: GBP42,000).
All investment income is derived from listed investments.
3. GAINS/(LOSSES) ON INVESTMENT HELD AT FAIR VALUE
(Unaudited) (Unaudited) (Audited)
For the For the For the
six six year ended
months months 30 April
ended ended 2023
31 October 31 October GBP'000
2023 2022
GBP'000 GBP'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
balance sheet date 71,038 (134,223) (190,508)
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 For the For the
six six year ended
months months 30 April
ended ended 2023
31 October 31 October GBP'000
2023 2022
GBP'000 GBP'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 GBP3,806,000 (31 October 2022: NASDAQ 100 Stock
Index put options with a market value of GBP1,432,000; 30 April
2023: NASDAQ 100 Stock Index put options with a market value of
GBP1,559,000). As at 31 October 2023, the Company held Microsoft
Corp call options and the market value of these open call option
positions was GBP3,008,000 (31 October 2022: No call option held;
30 April 2023: Microsoft Corp call options with a market value of
GBP1,012,000).
5. OTHER CURRENCY GAINS
(Unaudited) (Unaudited) (Audited)
For the For the For the
six six year ended
months months 30 April
ended ended 2023
31 October 31 October GBP'000
2023 2022
GBP'000 GBP'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 GBP2 billion;
-- Tier 2: 0.70 per cent. for such of the NAV between GBP2 billion and GBP3.5 billion; and
-- Tier 3: 0.60 per cent. for such of the NAV above GBP3.5 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: GBPnil). 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 GBP600,000 (31 October 2022: GBP630,000 and 30 April 2023:
GBP1,176,000).
8. CASH AND CASH EQUIVALENTS
(Unaudited) (Unaudited)
For the For the (Audited)
six months six months For the
ended ended Year ended
31 October 31 October 30 April
2023 2022 2023
GBP'000 GBP'000 GBP'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 GBP108,217,000
(31 October 2022: GBP95,543,000 and 30 April 2023: GBP90,414,000),
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)
For the For the (Audited)
six months six months For the
ended ended Year ended
31 October 31 October 30 April
2023 2022 2023
GBP'000 GBP'000 GBP'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
GBP66,918,000 (31 October 2022: GBP57,223,000 and 30 April 2023:
GBP117,078,000).
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
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------ ------------
Undiluted:
Net assets attributable to ordinary
shareholders (GBP'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. DIVID
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)
For the six (Audited)
months ended Year ended
31 October 30 April
2023 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 Company Secretary
for contacting the Directors Polar Capital Secretarial Services
16 Palace Street, London SW1E Limited
5JD represented by Jumoke Kupoluyi,
020 7227 2700 ACG
Corporate Broker Depositary, Bankers and Custodian
Stifel Nicolaus Europe Limited HSBC Bank Plc, 8 Canada Square,
150 Cheapside London E14 5HQ
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 .
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR FLFLTFRLLLIV
(END) Dow Jones Newswires
December 12, 2023 02:00 ET (07:00 GMT)
Polar Capital Technology (LSE:PCT)
Graphique Historique de l'Action
De Mai 2024 à Juin 2024
Polar Capital Technology (LSE:PCT)
Graphique Historique de l'Action
De Juin 2023 à Juin 2024
