Polar Capital Technology Trust
It is one of the biggest investment trusts in the sector, and no small bet on technology shares. With a market capitalisation of £3 billion-plus, the Polar Capital Technology Trust has a portfolio stuffed with high-octane stocks from Apple and Microsoft to Facebook and Amazon (Miles Costello writes).
While that means the trust has been a rampant performer during the recent tech market rally in the US, it does mean that it is highly exposed when investor sentiment turns sour, as it can do rapidly.
The trust, launched in 1996, aims to give shareholders access to high-growth companies that have technology at the heart of their business model. Its portfolio is managed by Polar Capital, an active fund manager founded in 2011 that manages more than £16.4 billion of assets in total.
The trust pays no dividend and prioritises capital growth for its investors, benchmarked against an adjusted version of the Dow Jones World Technology Index, which it beat during its most recent financial year, but not by much.
Given the nature of this vehicle, it should come as little surprise that the biggest investment is in Apple, the US-based maker of computers and the iPhone, which vies with Microsoft, its second-largest holding, to rank among the most valuable stocks in the world. Alphabet, the owner of Google, also features in Polar Capital Technology Trust’s top ten holdings, together with Facebook and Amazon.
Although Polar buys companies in a range of sectors, including leisure and entertainment, just over two thirds of the portfolio is skewed towards software and hardware, semiconductors, interactive media and internet businesses.
There are plenty of arguments for staying away from the tech sector, which is in the sights of regulators, amid intensifying debate about privacy and the use of consumer data. It is also vulnerable to political intervention from those worried about the undue influence of social media and the power of China.
Alibaba and Tencent, the Chinese tech multinationals, are also among the trust’s top ten positions and could feel the effects of anti-China sentiment from the White House. Donald Trump has already acted against the China-owned telecoms group Huawei and the app phenomenon TikTok.
The long-term growth in the value of tech businesses is there to see. When Google listed in 2004 for $85 a share it sparked immediate cries of foul, yet shares in Alphabet closed last Friday at $1,567.70.
In its favour, with the exception of a near £300 million position in Apple, Polar Capital Technology Trust’s portfolio is not heavily concentrated in any single holding. Enthusiasts might even argue that, at only 2.6 per cent of the portfolio, its exposure to a company such as Amazon could be higher.
At the end of September, the net asset value per share had beaten the benchmark over one, three and five years but, again, not by much. Over five years to the end of last month its NAV per share rose by 290.6 per cent, for example, against a 255.4 per cent gain in the reference index.
The shares, down 25p or 1.1 per cent to £21.90 yesterday, have traded during this year at both a premium and a discount to the prevailing NAV, suggesting that those investors keen to buy should pick their moment carefully. Yesterday the discount was just over 4 per cent.
For those who are unafraid of the regular rollercoaster ride that tech shares bring, this trust offers a diverse exposure to all the big corporate attractions, but is probably best held as a long-term value play.
Advice Hold
Why Offers diverse exposure to high-growth technology markets, but the area is volatile and vulnerable to regulatory intervention
Marston’s
It probably sounds odd to be tipping a pub stock in one of the worst years in living memory for the industry, but Marston’s has been pursuing an altogether different path to its quoted rivals, making it worthy of consideration as an investment (Dominic Walsh writes).
There are two issues in recent years that have called its strategy into question. The first is its debt burden, which stands at £1.3 billion, although the flip side up until the Covid pandemic was its generous dividend policy. The second is the market’s failure to properly value its brewing business. By injecting its brewing unit into a joint venture with Carlsberg, Marston’s is killing two birds with one stone.
In addition to having a 40 per cent stake in the venture, it will collect £273 million — £230 million of that on completion in the next couple of weeks — which will reduce its debt and means it will not have to raise further debt or equity to ensure it has sufficient liquidity to get it through the pandemic.
The joint venture, which this month got the green light from the Competition and Markets Authority, also means that, at some point, the company that traces its origins to 1834, when John Marston established his brewery in Burton upon Trent, will deploy the exit mechanisms enshrined in the terms of the deal to exit brewing altogether.
Mind you, as Ralph Findlay, 59, the chief executive, has made clear, the deal already represents a move away from Marston’s being in control of its beer business, adding: “Operationally, it will be a pub operator.”
With the strategic issues neatly filed in Mr Findlay’s out tray, he can now focus all his efforts on keeping the group’s 1,379 managed, franchised and leased pubs ticking along in survival mode.
He has already announced up to 2,150 pub-based job cuts, possibly with some head office casualties as well, while the 10 per cent decline in like-for-like sales since reopening on July 4 represented outperformance of 7 per cent relative to the wider pub sector.
The path to recovery will not be smooth, however, as local lockdowns compound the impact of measures such as the rule of six, table service and the 10pm curfew.
Advice Buy
Why Brewing exit cuts debt and bolsters its finance