Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
IT has been an astonishing start to the year with just a handful of stocks being responsible for the majority of the gain in the main US stock market index, the S&P 500. The magnificent seven, as they have been called, have made strong gains year-to-date, as they are considered to be the biggest beneficiaries of Artificial Intelligence (AI)1.
AI is a machine’s ability to perform the cognitive functions that are normally associated with human minds, such as perceiving, reasoning, learning, interacting and problem solving2. It is an area that is evolving at an amazing rate and could revolutionise the way we do things in much the same way as the internet did.
If you want exposure to the long-term transformative potential of Artificial Intelligence, one option would be the Polar Capital Technology Trust that is managed by the well-respected Ben Rogoff. He has put together a portfolio of tech stocks based on key themes such as digital transformation, cloud and cybersecurity, as well as AI.
Rogoff says that ‘generative AI could prove another key moment in human history when codification and dissemination of knowledge is accelerated’. He thinks that the impact will be more rapidly felt than previous breakthroughs such as the internet and the smartphone, given the low barriers to adoption and the speed at which it is developing.
Polar Capital Technology Trust 5-year price performance chart
Source: Yahoo Finance from 6.8.18 to 3.8.23 Basis: Share price in GBP. Excludes initial charge.
Past performance is not a reliable indicator of future returns
It has been a highly volatile period for the technology sector, with the increase in interest rates leading to a sell-off in 2022 before the AI fuelled recovery. These opposing forces have more or less cancelled each other out in Polar Capital’s annual accounts to the end of April, with an overall loss of 2.8%, despite the fact that it is one of the best performing investment trusts this year.3
The recent rally has resulted in tech stocks trading at a 1.4 times multiple of the market, which is above the historic average and could leave them vulnerable to a correction, although Rogoff believes that the valuation reflects the potential of AI. During the dot.com period and the emergence of the internet the multiple was significantly higher, although it didn’t end well.
After such a strong rebound it is unusual to see the trust trading on a 14% discount to net asset value (NAV), even though the Board has been actively buying back its own shares to narrow the gap. This is likely to be a sustainable policy given the liquid nature of the underlying holdings and should provide ongoing support.
The broker Numis rates Ben Rogoff highly and says that Polar Capital Technology is an attractive way to gain a diversified exposure to the tech sector. They believe that the current discount offers value for long-term investors who are comfortable with the volatility.4
More on the Polar Capital Technology Trust
Five-year performance table
|
(%) As at 4 Aug |
2018-2019 | 2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 |
|---|---|---|---|---|---|
| Polar Capital Technology Trust | 13.0 | 39.9 | 21.1 | -12.6 | 3.9 |
Past performance is not a reliable indicator of future returns
Source: FE, as at 4.8.23 Basis: Total returns in GBP. Excludes initial charge.
Source:
1 The Telegraph, 18 July 2023
2 McKinsey & Company
3,4 Numis, 19 July 2023
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in the Polar Capital Technology Trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. The trust uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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