Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — Shareholder Meeting (September 2019)
51 slides from Polar Capital Technology Trust's shareholder meeting presentation, Sep 4, 2019
Slide 1: AGM Presentation
Polar Capital Technology Trust plc AGM Presentation 4 September 2019 This presentation is for non-US investor use only For non-USwww.polarcapital.co.uk investor use only. Please refer to the Important Information at the end of this presentation. 1
Slide 2: Results As At 30 April 2019
Results As At 30 April 2019 Year ended Year ended Change 30/04/18 30/04/19 (y/y) Net Assets £1,551,611,000 £1,935,646,000 +24.8% NAV per ordinary share 1159.69p 1446.17p +24.7% Price per ordinary share 1148.00p 1354.00p +17.9% Benchmark Change +21.4% Ordinary shares in issue 133,795,000 133,825,000
Slide 3: PCT As At 31 July 2019
PCT As At 31 July 2019 Year ended Year ended Change As at 30/04/18 30/04/19 (y/y) 31/07/19 Net Assets £1,551,611,000 £1,935,646,000 +24.8% £1,931,775,000 NAV per ordinary share 1159.69p 1446.17p +24.7% 1443.51p Price per ordinary share 1148.00p 1354.00p +17.9% 1338.00p Benchmark Change +21.4% Ordina
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. MSCI ACWI since Apr 2018 • Global equities (FTSE World + 11.6%) added to their post financial crisis gains despite a weaker macroeconomic backdrop with the Fed volte-face in January sparking a dramatic reversal of fortunes for risk assets during the final thi
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since Apr 2018 • NAV performance (+24.7%) exceeded the benchmark by 3.3% – Key positives: AMD, software-as-a-service, payments – M&A supportive but only one take-out (Red Hat) – US exposure drove outperformance (Europe / Japan weaker due to se
Slide 6: The Technology Team
The Technology Team • Technology is at the core of the Polar Capital business • One of the largest technology franchises in Europe with c.US$6.1bn under management • Nine dedicated technology specialists – strong multi-cycle track record Global Technology Polar Capital Technology Automation & AI Fun
Slide 7: Investment Framework
Investment Framework 4,000+ universe Dynamic definition of technology Thematic overview Real-world changes in user behaviour S-Curve inflections What we look for Secular themes / pure-plays Last-generation winners What we avoid Public venture capital Growth bias – rev/earnings / cash flow Valuation
Slide 8: Thematic Investing: Hype vs. Reality
Thematic Investing: Hype vs. Reality Polar Capital Global Technology Team Searching for revenue growth and cash flow inflections Early stage investors Index / ETF R&D High growth Low growth No growth Connected Home negative OM% expanding OM% stable OM% uncertain / declining OM% Deep Learning Virtual
Slide 9: Thematic Investing: Hype vs. Reality
Thematic Investing: Hype vs. Reality Consumer Cash Payments, forecasts vs. actual (m)4 • Introduced in late 2016 to derision1 • Although Apple has never broken out unit sales, analysts estimate that 16m AirPods “How did you go bankrupt? were sold in 20182. This is forecast to Two ways. Gradually, th
Slide 10: An Unusual Cycle
An Unusual Cycle Longest bull market Weakest economic recovery S&P 500: periods without a 20% drawdown1 US real GDP from trough 10 years onward1 Source: 1. FT, Goldman Sachs. Trailing 12-month earnings. It should not be assumed that recommendations made in future will be profitable or will equal per
Slide 11: An Unusual Cycle
An Unusual Cycle Limited labour participation Unprecedented monetary policy Labour share of non-farm business sector %1 UK bond yields since 17001 Source: FT, Goldman Sachs. Trailing 12-month earnings. It should not be assumed that recommendations made in future will be profitable or will equal perf
Slide 12: An Unusual Cycle
An Unusual Cycle Tech has driven all the earnings growth since 2009 Helping growth stocks sharply outperform value Tech vs. Ex. Tech earnings (1985 – Present)1 World Value vs. Growth stocks (1974 – Present)1 Source: FT, Goldman Sachs. Trailing 12-month earnings. It should not be assumed that recomme
Slide 13: Technology: PE Expansion In-line With Market
Technology: PE Expansion In-line With Market Absolute sector valuation (PE): Relative sector valuation (PE): Compelling vs. history (1992 – present) At / around market level – with superior balance sheet Source: Ned Davis, 23 August 2019. Copyright 2018 Ned Davis Research, Inc. Further distribution
Slide 14: 'Next-Generation' Valuations
‘Next-Generation’ Valuations Internet valuation (equal cap weighted): Software as a Service (SaaS) valuation: EV/forward 2 year EV/EBITDA levels1 EV/forward 12-month revenue multiples2 25 20 15 10 5 0 Jan-13 Apr-13 Jul-13 Oct-13 Feb-14 May-14 Dec-14 Mar-15 Jun-15 Jan-16 Apr-16 Jul-16 Nov-16 Feb-17 M
Slide 15: 'Next-Generation' Valuations
‘Next-Generation’ Valuations IT security valuation: Cloud vs legacy valuation EV/forward 12 month revenue multiples1 EV/trailing 12 month revenue multiples2 14x 12x EV/ trailing 12 month sales 10x 8x 6x 4x 2x 0x Jan-10 May-10 Jan-12 Jun-12 Jan-19 Jun-19 Nov-12 Dec-14 May-15 Dec-16 May-17 Oct-10 Mar-
Slide 16: Valuations Supported By Elevated M&A
Valuations Supported By Elevated M&A… Software M&A since 19951 Select M&A activity2 Date Target Acquirer Premium Value $m Jan-17 AppDynamics Cisco 100%* 3,700 Mar-17 Nimble Storage HP Enterprise 45% 1,000 Mar-17 Mobileye Intel 34% 14,131 Mar-18 MuleSoft Salesforce.com 36% 5,667 Jun-18 GitHub Microso
Slide 17: And The 'Digital Transformation' Imperative
… And The ‘Digital Transformation’ Imperative Digital Transformation – “the business imperative of responding to needs of a new generation of customers, partners and suppliers who expect transactions to be seamless, real-time, Facebook-like in experience, Amazon-like in reliability”1 Proportion of C
Slide 18: Digital Disruption
Digital Disruption Source: Polar Capital, 31 July 2019. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 18
Slide 19: New Networks / Unprecedented Scale
New Networks / Unprecedented Scale Centralised, decentralised and distributed networks1 >6bn daily searches 636m active users 8 apps > 1bn MAU $768bn GMV in F18 2.3bn MAU, 1.5bn DAU WeChat: >1bn MAU 27+ minutes/user/day 45bn daily messages 101m US prime subs >10bn rides 48% of US ecommerce 600+ citi
Slide 20: Digital Disruption: Artificial Intelligence (AI)
Digital Disruption: Artificial Intelligence (AI) Collapsing Computing Costs (1850 – 2010)1 “Artificial Intelligence technologies will be the most disruptive class of technologies over the next 10 years due to radical computational power, near-endless amounts of data, and unprecedented advances in de
Slide 21: Digital Disruption: Retail
Digital Disruption: Retail US Retail Store Closings: 1995 – 2017 YTD1 Amazon Prime Subscriber Growth: 2012 – 20171 “I don't think retail is dead. “This business is all about reducing response time. Mediocre retail experiences are dead” In fashion, stock is like food. It goes bad quickly” - Neil Blum
Slide 22: Digital Disruption: Brands
Digital Disruption: Brands Amazon Basics, US online market share1 “Big brands are being nibbled to death”2 – IAB CEO Randall Rothenberg Source: 1. Amazon market share as at August 2016. 2. http://www.businessinsider.com/new-breed-programmatic-first-ad-agencies-grabbing-business-ignored-by-traditiona
Slide 23: Digital Disruption: Brands
Digital Disruption: Brands An extra large, wet, double-shot Coffee caramel macchiato (and WiFi) £1.00 £4.00 It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the imme
Slide 24: Digital Disruption: Distribution > Content
Digital Disruption: Distribution > Content Global recorded music, inflation adjusted sales1 Listening hours / unique artists played (2014-2017)2 • Streaming now c. 47% of recorded music sales1 led by Spotify (217m active, >100m paid subs)2 • Video disruption: YouTube (>1.8bn MAU)3, Netflix (>150m su
Slide 25: Digital Disruption: Demographics
Digital Disruption: Demographics How Couples Meet (1940 – Present)1 Spending Breakdown: Chinese Millennials2 96% own a smartphone, more than 50% are online >10 hrs/day4 Generation Z 70% watch more than 2 hours of YouTube/day3, 83% watch Netflix5 62% will not use apps that are hard to navigate6 c.26%
Slide 26: Digital Disruption: The Next Interface Is Voice
Digital Disruption: The Next Interface Is Voice Words recognised by machine: 1970 - 20161 Amazon Echo Installed Base / Skills2 • Humans speak 150 vs. type 40 words per minute on average1 • Recognition accuracy shift from 95% to 99% will drive ubiquity of voice as an interface1 • By 2020, 75% of US h
Slide 27: Investment Themes
Investment Themes Digital Marketing / Advertising Internet advertising worth $273bn in 20182, 43% of total ad spending2 Alphabet and Facebook combined account for c.90% of US market growth3 Brand Building → Transaction facilitation eCommerce eCommerce est. $3.5tr in 2019, c14% of total retail sales1
Slide 28: Investment Themes
Investment Themes Software / SaaS “Reshaping The World” Usage based pricing disrupting $150bn2 maintenance market As penetration rises (~30% today5 ) expect more strategic M&A by incumbents SMB adoption / TAM expansion→ Enterprise / ‘rip and replace’ Digital Entertainment $122bn gaming market1 growi
Slide 29: Investment Themes
Investment Themes Eight core theme breakdown (31 January 2017 – 31 July 2019) 24% 23% 22% 21% 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
Slide 30: Online Advertising / Digital Marketing
Online Advertising / Digital Marketing • Global online advertising worth $283bn in 2018, c. 46% of total worldwide advertising spend1 • Online share of US advertising now commensurate with % time spent in media (51% vs. 20%/33% in 2010)…2 • …but TV + radio + print still c.49% of US ad spending and n
Slide 31: eCommerce
eCommerce • eCommerce growth continues unabated and is forecast at $3.5tr in 2019E, representing c.14% of total retail sales1 • Amazon’s share of US e-commerce now 47%, 4.6% of all retail spend2 • Mobile now an integral part of the shopping experience, accounting for 63.5% of all retail eCommerce 2
Slide 32: Payments / Fintech
Payments / Fintech • Global mobile payment market set to reach $2.73tr by 2023, representing a 25% CAGR 2018-20231 • 2.1bn consumers expected to make a purchase via a mobile wallet in 2019, >50% in China2 • B2B opportunity: $120tr (vs. $45tr consumer volume) largely cheque-based today ($4-20/transac
Slide 33: Software (Is Eating The World)
Software (Is Eating The World) • Rental / usage-based model is expanding the software market while threatening incumbent franchises / maintenance • Software as a service (SaaS) targets a $325bn opportunity by 2022, representing 25% of IT spending1 • Focus on the customer experience (CX) driving a fr
Slide 34: Digital Entertainment
Digital Entertainment • Video games: $122bn market in 2017 → $152bn by 2020E (~10% CAGR), driven by new console cycle, mobile and AR/VR1 • Meteoric rise of Free-To-Play Fortnite (>78m MAU / $2.4bn sales): both risk and opportunity2 • Streaming video : c.200m (vs. 1bn paid TV) subscribers worldwide,
Slide 35: Cloud Infrastructure / Security
Cloud Infrastructure / Security • Having debunked many of the earlier barriers to adoption, we expect Cloud migration to accelerate over the coming years • Expect ‘all’ incremental capacity added in cloud: c. 50% of spend by 20192 and 44% of application workloads by 20213 • Cloud deflation likely to
Slide 36: The Data Economy / Artificial Intelligence (AI)
The Data Economy / Artificial Intelligence (AI) • 2.5bn gigabytes of data is generated per day but only 1% is stored and analysed; this could increase to 37% by 20251 – e.g. a single AV may generate 4TB of data/ day, equivalent to 3,000 people today1 • AI likely to be the single largest driver of te
Slide 37: Connectivity: 5G / IoT / Edge Computing
Connectivity: 5G / IoT / Edge Computing • Current networks insufficient capacity / latency to support an increasingly connected world (c.29bn devices by 2022)1 • 5G up to 100x faster with low latency (<1ms) → infrastructure spending to reach $26bn by 2022 (CAGR +118% 2018-2022)2 • China 5G leadershi
Slide 38: Smartphones / Apple
Smartphones / Apple • The c.1.5bn unit smartphone market is mature: global penetration at c.66%1 and units expected to decline 2.5% y/y in 2019E1 • Apple remains unique: premium pricing + services. Wearables (+50% y/y in FQ3’19) AirPod / Watch attach at estimated 7% / 12%2 • Can 5G shorten replaceme
Slide 39: Industry 4.0: Automation / Simulation
Industry 4.0: Automation / Simulation • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Sensor data + connectivity = design software / simulation expands into product lifecycle management / ‘digital twin’ • Over 25% of manufacturing
Slide 40: Emerging Themes
Emerging Themes Source: Gartner, August 2019. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 40
Slide 41: Autonomous Vehicles
Autonomous Vehicles • Automotive market ripe for reinvention: connectivity / infotainment, advanced driver assistance systems (ADAS) / autonomous driving, vehicle electrification • 1.25m deaths worldwide due to vehicle crashes in 2014 while 94% of US accidents involve human choice / error1 • Global
Slide 42: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 28.0% Semiconductors & Semiconductor Equipment 17.3% Large Cap (>$10bn) 77.9% Interactive Media & Services 16.2% Mid Cap (>$1bn - $10bn) 20.5% Technology Hardware, Storage & Peripherals 8.5% Internet & Direct Marketing Retail 5.9%
Slide 43: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark Advanced Micro Devices Alphabet Aixtron Amadeus IT Holding Alteryx Apple Large-cap -11.7% Amazon Broadcom Analog Devices Cisco Systems Arista Networks Cognizant Technology Solutions Aspen Technology eBay Ch
Slide 44: PCT Positioning
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark (%)1,2 10.0% Legacy 10% 5.0% Internet 23% 0.0% -5.0% Semiconductors 23% -10.0% Cloud: applications -15.0% 16% -20.0% Smartphones 1% Apple 6% Medical Technology -25.0% Big data / AI Smartphones Emerging Solar IoT Materials
Slide 45: PCT Positioning
PCT Positioning Index Index ex PCT1 Sales growth 2020 – PCT vs. benchmark2 Top 100 Apple PE (Median) CY 29.5 21.2 21.3 50.0 NY 25.1 17.6 18.1 Earnings growth (Median) CY 4.8 5.5 5.6 45.0 NY 25.1 14.9 15.1 EV/Sales (Mean) CY 7.9 6.0 6.0 40.0 NY 6.3 5.2 5.2 EV/Sales (Median) CY 6.7 4.6 4.7 35.0 NY 5.6
Slide 46: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation. 46
Slide 47: Team Biographies
Team Biographies Ben Rogoff – Partner Experience: 23 years Ben joined Polar Capital in May 2003. He is lead manager of Polar Capital Technology Trust plc and is a Fund Manager of the Polar Capital Global Technology Fund and Polar Capital Automation and Artificial Intelligence Fund. He has been a tec
Slide 48: Team Biographies Cont.
Team Biographies Cont. Fatima Iu (Maternity Leave) Experience: 13 years Fatima joined Polar Capital in April 2006 and has 13 years’ experience. She is a fund manager on the Polar Capital Technology Fund, Polar Capital Technology Trust and Polar Capital Automation and Artificial Intelligence Fund. Sh
Slide 49: Team Biographies Cont.
Team Biographies Cont. Brad Reynolds Experience: 11 years Brad joined Polar Capital in October 2011 as an Investment Analyst and Trader working as part of the European Market Neutral team with a focus on media and internet. In 2014, he joined the Technology team as an Investment Analyst. Prior to jo
Slide 50: Important Information
Important Information Polar Capital 16 Palace Street London SW1E 5JD Important Information: This document is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any
Slide 51: Important Information Cont.
Important Information Cont. Polar Capital 16 Palace Street London SW1E 5JD Regulatory Status: Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK FCA and is registered as an investment adviser with the US Securities & Exchange Commission (“S
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