Polar Capital Technology, the tech-focused investment trust, said today that it believes global tech stocks remain attractive despite their recent performance, valuation, and general economic concerns.
The trust, which recorded a 12.1 per cent increase in net asset value (NAV) per share over the six months to 31 October, compared to a return of 12.8 per cent for its benchmark, the sterling-adjusted Dow Jones Global Technology Index, said it had rotated “decisively towards AI as a primary investment theme,” during the first quarter.
However, while its AI-focused stock selection helped the trust, its performance was hampered by its average cash position of 5.5 per cent and Nasdaq 100 put options.
Despite the trust’s performance over the period, its managers, Ben Rogoff and Ali Unwin noted equity valuations could be trading at the “higher end of the future range if we are entering a period of structurally higher interest rates.”
They added: “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.”
Still, despite this headwind, they said the so-called ‘Magnificent Seven,’ Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla, which make up 29 oer cent of the S&P 500 remain attractively priced. as the group “trades at 27.5x 2024 price-to-earnings ratio, which does not seem excessive for circa 20 per cent earnings growth compound annual growth rate.”
The managers also pointed to the potential impact technology could have on growth and productivity. Comparing the current period of economic progress to the post-World War Two period they said: “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.
“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.”
