Over the year to 30 April 2014, the Polar Capital Technology Trust (PCT), one of our Top 100 Funds for 2013, underperformed the Dow Jones World Technology Index by 1.9 per cent, delivering NAV growth of 11.2 per cent compared to 13.1 per cent from the benchmark.
The manager, Ben Rogoff, says the fund outperformed for most of the year, but lost all its outperformance in the final six weeks because of a swing away from new, growth technology stocks such as Tesla (TSLA) and Twitter (TWTR), in favour of "old-guard" value technology stocks such as Microsoft (MSFT) and Intel Corp (INTC).
The fund also lost out because it held 4.7 per cent (at 30 May 2014) of its assets in cash, and it had a significant 5.3 per cent allocation to Japan.
Mr Rogoff says the fund would have performed better if it had invested more heavily in large-cap, old technology companies such as Nokia (OHAF), HP (HPQ) and Apple (AAPL). But he says these companies have a challenging future, as they operate in industries where growth is slowing or in secular decline. This is in sharp contrast to the emerging, next generation technology companies where he is convinced that a new secular bull market is forming.
Investment trust analysts at Oriel Securities have taken a negative view on Polar Capital Technology because it has lagged its benchmark consistently over one and three years. Although disappointingly, it has chosen to omit its three-year performance from its latest factsheet, making its consistent failings difficult for investors to spot. Oriel analyst, Anthony Stern, says: "The fund's relatively low use of active strategy to deviate from its benchmark index (its active share is around 40 per cent) suggests this is likely to continue the fund's close tracking of the index. However, once costs are factored in, it is likely to underperform. The manager says the fund is planning to gradually increase its active share - however, on the current status we are not convinced." The trust is trading on a 3.5 per cent discount, which has widened from its average 1.0 per cent 12-month discount, according to Morningstar data.
Cumulative performance of Polar Capital Technology Trust
| 1 month | 3 months | 6 months | 1 year | 3 years | 5 years | |
| Ordinary Share Price | 1.9 | -0.8 | -3.6 | 15.8 | 32.5 | 159.4 |
| NAV per Share | 3.4 | 2.6 | 2.5 | 16.0 | 36.2 | 130.3 |
| Dow Jones World Technology Index | 0.9 | 4.0 | 6.1 | 17.7 | 39.6 | 107.7 |
| Source: Polar Capital on June 30th 2014 | ||||||
Oriel is much more positive on rival Top 100 Fund, RCM Technology (RTT), which has performed well in recent years. Over one, three and five years, its performance has beaten the Dow Jones World Technology Index, delivering 139 per cent over five years, compared to 107.1 from the index. However, it has lost money and lagged the benchmark over the past six months, losing 3.6 per cent compared to a 7.7 per cent gain from the index. An attractive feature is that it has a declared discount policy, which may offer some level of protection against widening discounts and premiums. Despite its recent losses, it is still trading on a 3.6 per cent discount, slightly wider than Polar Capital's shares. Its manager, Walter Price, has almost 30 years of experience managing technology portfolios. His approach is best described as "active and high conviction". The trust's TER is 1.3 per cent.
Meanwhile, Herald Investment Trust (HRI), a technology trust which has yet to earn a place in our Top 100 Funds list, is trading on a 15 per cent discount. This is in line with its average discount over the last year of 15.5 per cent. The discount is wide because many of the underlying stocks are illiquid, which means the trust isn't as nimble as its competitor trusts, because it can't buy and sell quickly. It also has a very large portfolio and lacks a stated discount control policy. The one thing the fund does have going for it is that it provides investors with access to fast-growing, new technology companies, which due to their size would normally be out of reach to them.
