Tech trusts for maximum growth: Allianz vs Polar Capital

It’s hard to claim underperformance in a fund that has delivered 250 per cent share price growth in the last five years – comfortably ahead of its benchmark, the Dow Jones Global Technology Index, which has risen 182 per cent in the same period. But Mary McDougall – who posed the question to Mr Rogoff – might have a point. The Polar Capital Technology Trust has not kept pace with its peer, the Allianz Technology Trust (ATT) which is far less wedded to its benchmark and has delivered 300 per cent share price growth in the last five years.

Past performance is certainly not the only indicator of future success, but investors pondering increasing their exposure to the US tech sector – which contributes 70 per cent and 90 per cent of the portfolio at PCT and ATT respectively – are likely to assess the relative success of Mr Rogoff and his counterpart at ATT, Walter Price, when picking which of these two trusts to invest in.

There is no question that they are both superb products, run by managers who understand the industry exceptionally well. Mr Rogoff has steered the ship at PCT since 2006 and claims to have held more Apple (US:AAPL) stock than any investor in the UK in that period. An early investment in Apple has certainly served the portfolio well – the company’s share price has climbed over 4,000 per cent since Mr Rogoff became the fund manager.

Mr Price, who has led the team at ATT since 2007, has enjoyed his own series of successes, most recently taking decent positions in video conferencing company, Zoom (US:ZM) and electric vehicle manufacturer, Tesla (US:TSLA) at the start of 2020. Both company’s share prices have risen more than threefold in the year to date.

In fact, there have been few years since either of these managers’ appointments that PCT and ATT have not delivered sizeable returns for their shareholders.

That performance matters. Funds and investment trusts that follow a benchmark must deliver material outperformance to justify their costs relative to a tracker. Management and ongoing fees at PCT and ATT, when added together, come in at a total of just under 2 per cent, with performance and account fees on top of that. Buying the Vanguard Information Technology ETF (US:VGT), which simply tracks the MSCI US IT index, costs just 0.1 per cent per year.

True, the ETF hasn’t delivered the same level of growth as the either of the investment trusts, but a 190 per cent five-year return is nothing to be scorned. Take away fees and some investors may have enjoyed better overall returns with the tracker.

The importance of expertise

But perhaps it is unfair to compare the performance of an actively managed investment trust with a passive tech fund during an exceptionally long bull market that has been driven by the technology sector. Investors with US tech exposure would have been hard pressed not to make money in the last five years.

But investment in technology is becoming more nuanced. Competition is heating up in parts of the industry where pioneers were, until recently, relatively uncontested – streaming, gaming and cloud computing, for example. That means investors may need to consider their technology stocks with more care. Mr Rogoff compares the shift in the tech sector to the early days of the automobile industry. “It was very difficult to know which automakers to own at the turn of the auto era, but much easier to know not to own horse and carriages.”

So, while at Polar Capital, Mr Rogoff likes to stay true to the benchmark, there are some areas of the tech market where he wants maximum exposure. “Artificial intelligence (AI) remains the most powerful thing we invest in,” he explains. The fund gets its exposure to the burgeoning AI industry via companies that are investing in the software and chip-makers that will power these technologies.

Allianz also holds decent stakes in chipmakers, including Nvidia (US:NVDA), Taiwan Semiconductor Manufacturers (US:TSM) and Advanced Micro Devices (US:AMD). According to Mr Price, the fund has “a large part of our portfolio in the semiconductor industry and a large part of our portfolio in the cloud”.

ATT and PCT also share an appreciation for the giants of the US tech industry. Apple and Microsoft hold the number one and two slots in both portfolios, contributing 10 per cent of the total holdings at Allianz and 18 per cent at Polar Capital. Both also hold sizeable positions in the remaining ‘FAANGs’ – Facebook (US:FB), Amazon (US:AMZN), Netflix (US:NFLX) and Google-owner, Alphabet (US:GOOGL) – and the two fund managers have similar views on the outlook for these giants, including regulatory issues. Mr Price says that the size of the FAANGs means that “it makes sense for countries to try and extract more tax from them”, but agrees with Mr Rogoff’s view that “these are natural monopolies, rather than the robber barons of the gilded age.” Regulating them is therefore going to be difficult.

But while these two funds share many of the same characteristics and holdings, subtle differences have driven the outperformance at ATT. Polar Capital invests in a bigger number of companies – 106, compared with 69 at Allianz – and has also taken bigger positions in its largest holdings. The top 10 positions represented more than 50 per cent of the fund at the end of June, compared with 33.7 per cent at Allianz.

Perhaps that is a symptom of the desire to stick to the benchmark. Polar Capital must drive its outperformance by increasing its exposure to the best-performing companies on the benchmark, whereas the fund managers at Allianz are happy to pick from a broader range of companies and sometimes invest in smaller companies with less of a track record. Zscaler (US:ZS), for example, the $16bn cloud-based IT security company which was only founded in 2008 and listed in 2018, is among the top 10 holdings at Allianz, but doesn’t feature in the portfolio at Polar Capital. Its share price has risen fourfold since the 2018 IPO.

Mr Rogoff admits that loyalty to the benchmark might mean the trust has missed out on some big wins. For example, PCT has never had a particularly large stake in Amazon as the e-commerce giant is listed as a consumer goods company and therefore isn’t on the Dow Jones Information Technology benchmark. “If the benchmark had Amazon, would I have bought some more?” he ponders – perhaps.

That said, it’s hard to find fault in the management of either the Polar Capital Technology Trust or the Allianz Technology Trust. If stock picking in the tech sector is set to become harder in the coming years as parts of the industry mature, both PCT and ATT look like excellent options for investors looking for growth. The latter has a better track record, but that is reflected in a 3.3 per cent premium to its net asset value. The former – currently trading at a slight discount to its net asset value – could be the better option right now, especially if Ben Rogoff is willing to loosen his hold on the benchmark.

Listen to the full interviews with Ben Rogoff and Walter Price in the links below