Rogoff (pictured) is particularly excited about new disruptive technologies, such 3D printing, augmented and virtual reality, drones and wearable computing. However, he said that companies operating in these areas can be difficult to invest in, as many are still very early stage.
‘We are beginning to feel the new cycle,’ Rogoff said. ‘Within the portfolio we have exposure to a number of exciting emerging themes. We expect these to become more significant – both in terms of their real-world and portfolio importance – over the coming years. We have about 10 names in this portfolio where we think they will be beneficiaries of this new stage in the cycle and we will be doing more on this.’
Nevertheless, Rogoff said he will not buy into start-up companies, leaving this to venture capitalists. He highlights virtual reality as an example. Although significant advances have been made in this field, there are few listed companies that can provide significant exposure to the theme.
‘We try to leave these new trends and watch them until they are ready for investment,’ he said.
‘One of the frustrations of tech, for as long as I have been doing this, is that the promise of the sector takes longer to play out and tech themes can disappoint in the end. The tech sector is very good at selling the sizzle but not very good at producing the sausage.’
Backing blue chips
Rogoff holds a significant portion of the trust in larger blue chip names, which have strong balance sheets and are already monetising their innovations. Top 10 positions in the trust include industry stalwarts Google, Apple, Facebook, Microsoft and Amazon.
Although these names are well-owned and have broadly performed strongly, buoyed by the US equity market bull-run, Rogoff said they still have a place in his portfolio.
‘I am comfortable with the big names, as long as they are still interesting investments,’ he said.
‘We will not carry them for ballast and we feel very good about them. We have been encouraged by the new chief executive at Microsoft and the management direction the other companies are taking.’
Rogoff is underweight these names relative to the Dow Jones World Technology index, as Microsoft, Apple and Google alone account for 28% of the index, and notes some larger players are now starting to lag their smaller counterparts.
‘Many technology incumbents delivered lacklustre growth in the last quarter, which appeared to support our view that the new cycle had entered a more pernicious phase,’ he said.
‘While PC fundamentals remained robust during the first half of the fiscal year, the third quarter was more challenging for enterprise incumbents. However, the most significant mishap came from IBM which, after a series of lacklustre results, delivered a very poor quarter with revenue declining year-on-year in all segments and all geographic regions.’
What's been working
Rogoff said the trust’s strong performance is partly attributed to having limited exposure to some of the largest index names that have disappointed, such as Samsung Electronics, Hewlett Packard and Qualcomm, as well as a zero exposure to IBM. Another positive contributor to performance was a surge in merger and acquisition activity, which he expects to continue.
Three of the trust’s positions, Concur Technology, Integrated Silicon Solutions and Sapient, have been acquired over the past year and Rogoff believes mid cap tech names could be well-placed to benefit from this trend.
‘We expect M&A activity to support small and mid cap valuations, although recent deals have involved large cap peers combining, using cheap debt to generate immediate financial synergies in the style of private equity, which have been cheered by shareholders,’ he said.
Over three years, the Polar Capital Technology trust is up 155.7%, in share price terms, compared to a 150% rise by the FTSE World index.
The trust is currently trading on a discount of 0.39%, down from a three-year high of 7.36% last September.
A question of fees
The £793 million Polar Capital Technology trust, like many closed-end funds, recently undertook a review of its cost structure. In its latest financial results, the board of the trust decided to keep the trust’s performance fee for the manager but decided to lower its base fee when assets surpass £800 million.
‘While the current base fee of 1% of gross assets and an ongoing charge ratio of 1.08% remains competitive for the specialist sector, we have negotiated a new arrangement to bring us more in line with current best practice,’ Michael Moule, the trust’s chairman, told the stock market.
‘The 1% base fee will in future be levied on net asset value, and net assets in excess of £800 million will attract a reduced base fee of 0.85%.’