Interim Management Statement

RNS Number : 5911S

Polar Capital Technology Trust PLC

13 September 2010

 



Polar Capital Technology Trust plc

Interim Management Statement for the 3 months to 30 July 2010 (unaudited)

The investment objective of Polar Capital Technology Trust PLC is to maximise capital growth for our shareholders through investing in a diversified portfolio of technology companies around the world.

Review of Material Events in Period

·    Performance over the period from 30 April 2010 to 31 July 2010 is shown below. The NAV per share has fallen by 5.9% while the Dow Jones World Technology Index (£) fell by 10.2%.

·    The shares have traded at discounts between -8.6% and +0.4%.

Manager's Comments:

Market Performance

Global equities fared poorly over the quarter as disappointing US macroeconomic data led to a reduction in risk appetite. The FTSE World index fell 8.1% in Sterling terms. Weakness was most keenly felt in Europe where the sovereign debt crisis facing Greece and Spain escalated early in the period before a Euro 750bn ECB bailout allayed investor nerves somewhat. However, additional negatives in the form of US financial reform and attempts by China to restrain asset prices reinforced the risks to growth expectations and led to sharply lower US Treasury yields. Unfortunately these macroeconomic developments overshadowed a robust first quarter earnings season. June did nothing to lift the gloom as the disappointing US data - limited improvements in labour and housing markets which together with weak retail sales further challenged the recovery trajectory, raising the spectre of a so-called 'double dip'. This impacted risk appetite resulting in further Treasury market strength (ten year yields falling below 3%) and particularly weak equity markets during the second half of the month. Whilst macroeconomic data remained mixed at best during July, uneventful bond auctions in Spain, Euro strength and a strong start to second-quarter earnings season saw risk assets rally sharply (although Sterling returns were pared by Dollar weakness).

Technology Performance

The technology sector trailed the broader market during the quarter as faltering risk appetite and growth expectations took their toll, the Dow Jones World Technology index falling 10.2% in Sterling terms. As in the broader market, bottom-up improvement was overshadowed by macroeconomic disappointment leading to pronounced underperformance by the most cyclical subsectors (such as semiconductors) as investors began to question the earnings estimates. M&A early in the quarter and a strengthening Dollar saw large-caps underperform. Whilst the sector trailed during the latter half of the quarter much of this was 'passive', reflecting the poor performance of US equities and the Dollar. Large-cap stocks continued to trail following a mid-June profit warning from Nokia and lacklustre results from RIMM. These developments were in stark contrast to Apple's launch of its next-generation iPhone, which sold 1.7m devices in just three days. The bifurcation between 'have' and 'have-nots' became even clearer during Q2 earnings season that was (once again) characterised by nextgeneration companies significantly outpacing their incumbent competition. Strongest reports were posted by the likes of Citrix, F5 Networks, VMware and Juniper Networks whilst earnings from IBM, SAP and a number of other legacy vendors proved more prosaic.

Outlook

Whilst the combination of disappointing US data and the recent rally has resulted in us modestly raising liquidity towards the end of July, we remain optimistic that markets can add to their gains during the second half of the year. As previously opined, we continue to believe that the absence of inflation will allow the global economy to muddle through despite the challenges posed by fiscal tightening and sub-trend growth. To this end the recovery in the Euro and successful Eurozone government bond auctions are indicative of diminished systemic risk and reduced likelihood of a 'double-dip'. Whilst we do not anticipate a re-rating of equities whilst the global recovery is perceived as fragile, we consider current valuations to be compelling and therefore attractive to longer-term investors that share our relatively sanguine prognosis. The recent dampening of 2H10 growth expectations should set up markets for a better second half, as long as the US slowdown proves nothing more sinister than a mid-cycle pause.

Although technology stocks have recently trailed the broader market, we consider this largely passive and as such see nothing ominous in the sector's underperformance. We believe that weakness in semiconductor stocks (on 'peak cycle concerns') is better understood as a delayed reaction to disappointing US data rather than a function of bloated inventories that often characterise the cycle's zenith. As such we anticipate using further weakness to add to our semiconductor exposure given our medium term expectations for an atypical cycle. We remain encouraged by compelling valuations (the technology sector trading at just a 10% premium to the market despite a vastly superior aggregate balance sheet) and the commencement of a new technology cycle. The Q2 earnings season has provided our thesis with a further boost as the gulf between next-generation 'winners' and legacy incumbents appears to be widening.

Ben Rogoff

	30 July 2010	30 April 2010	Change (%)
Share Price (p)	292.5	306.8	-4.7
NAV per Share (p)	296.6	315.1	-5.9
Discount (%)	-1.4	-2.6	48.2
Total Investments (£m)	375	399	-6.0
AIC Gross Gearing Ratio (%)*	108	107	0.9
AIC Net Gearing Ratio (%)*	97	97	0.0
*Gearing calcultaions are exclusive of current year Revenue/Loss.

Performance (%)		3 Months	1Year	5 years
Share Price		-4.7	43.4	38.8
NAV per Share		-5.9	27.9	33.2**
Dow Jones World Technology Index (Total Return) (from 1 May 2006)		-9.5	20.0	29.1
**Not adjusted for warrant exercise in September 2005. NAV per share performance is calculated on the basis of diluted NAV for the entire period.
Geographical Breakdown (%)	30 July 2010		30 April 2010
North America	70.9		70.7
Asia	13.0		13.0
Europe	7.3		7.4
Japan	5.5		5.7
Cash & Equivalents	3.3		3.2

Sector Breakdown (%)	30 July 2010		30 April 2010
Semiconductors	23.1		25.3
Computing	21.2		20.7
Software	18.7		19.1
Comms Equipment	17.3		17.1
Internet / Consumer	10.7		10.0
Services	5.8		4.6
Electronic Components	1.1		1.1
Other Sectors	0.7		0.8
Telecoms / Media	0.7		0.8
Healthcare	0.4		0.3
Defence / Security	0.2		0.1
Clean Energy	0.1		0.1
Top Ten Holdings (%)		30 July 2010		30 April 2010
Apple		7.9		7.5
Microsoft		4.6		5.2
Google		4.5		3.7
Cisco Systems		3.8		3.5
Intel		3.0		3.1
Oracle		2.5		2.7
Samsung Electronics		2.4		2.6
International Business Machines		2.4		3.4
Hewlett-Packard		2.4		2.4
Canon		1.8		1.9
Total		35.3		36.0

Shares in issue
As at 30 October 2009		126,497,914
-     Shares bought back and cancelled		0
-     Shares held in treasury		0
As at 29 January 2010		126,497,914
General Information:	For further information please visit the company's website where a PDF version of this announcement is available.
	www.polarcapitaltechnologytrust.co.uk
This interim management statement has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party for any other purpose.

 

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