Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — Shareholder Meeting (September 2020)
45 slides from Polar Capital Technology Trust's shareholder meeting presentation, Sep 2, 2020
Slide 1: Polar Capital Technology Trust plc AGM Presentation 2020
Polar Capital Technology Trust plc AGM Presentation 2020
Slide 2: Results as at 30 April 2020
Results as at 30 April 2020 Year ended Year ended Change 30/04/19 30/04/20 (y/y) Net Assets £1,935,646,000 £2,308,597,000 +19.3% NAV per ordinary share 1446.40p 1715.59p +18.6% Price per ordinary share 1354.00p 1774.00p +31.0% Benchmark Change +18.1% Ordinary shares in issue 133,825,000 134,566,000
Slide 3: PCT as at 31 July 2020
PCT as at 31 July 2020 Year ended Year ended Change As at 30/04/19 30/04/20 (y/y) 31/07/20 Net Assets £1,935,646,000 £2,308,597,000 +19.3% £2,839,527,006 NAV per ordinary share 1446.40p 1715.59p +18.6% 2067.91p Price per ordinary share 1354.00p 1774.00p +31.0% 1950.00p Benchmark Change +18.1% Ordina
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. FTSE World TR since April 2019 • Global equities (FTSE World -1.5%) fell modestly during one of the most remarkable years in living memory as COVID-19 changed the world as we knew it. • This unprecedented challenge was met with remarkable worldwide monetary a
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since April 2019 • Sector strength obscured the growing divergence between next-generation and legacy companies, as well as large cap (+21%) and small-cap (- 3%). This divergence extended post COVID with outstanding outperformance experienced
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$10.9bn under management • Nine dedicated technology specialists – strong multi-cycle track record Global Technology Polar Capital Technology Automation & AI Fu
Slide 7: Investment Framework
Investment Framework 4,000+ universe Dynamic definition of technology Thematic overview Real-world changes in userbehaviour S-Curve inflections What we look for Secular themes / pure-plays Last-generation winners What we avoid Public venturecapital Growth bias – rev/earnings/ cash flow Valuation Pri
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 R&D High growth Low growth No growth Pre-Revenue negative OM% expanding OM% stable OM% uncertain / decliningOM% Payment network Digital Gaming EM smartphones Sales (blue)
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 • Analysts estimate that 16m AirPods were sold in 20182 , 40m in 20193 and as many as “How did you go bankrupt? 100m by 20212.. Two ways. Gradually, then suddenly.” • This wo
Slide 10: Technology Outperformance
Technology Outperformance Tech has driven all the earnings growth since 2009 Helping growth stocks sharply outperform value Tech vs. Ex. Tech earnings (1985 – Present) World Value vs. Growth stocks (1974 – Present) Source: FT, Goldman Sachs. Trailing 12-month earnings. It should not be assumed that
Slide 11: Eight Core Investment Themes
Eight Core Investment Themes Core Investment themes (estimated exposure in Fund) SaaS / Software "Eating the World" 13.3% Industry 4.0 / Automation 3.7% Cloud Infrastructure / Security 11.1% Digital Entertainment 11.6% Mobility / Connectivity / 5G 17.6% Payments / Fintech 4.6% Data Economy / Artific
Slide 12: Investment Themes
Investment Themes Eight core theme breakdown (31 January 2017 – 31 July 2020) 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Oct-17 Oct-18 Oct-19 Mar-17 Aug-17 Mar-18 Aug-18 Mar-19 Aug-19 Mar-20 Jul-19 Jul-17 Jul-18 Jul-20 Jun-17 Jun-18 Apr-19 Jun-19 Jun-20 Jan-17 Apr-17 Apr-1
Slide 13: Digital Disruption: Demographics
Digital Disruption: Demographics How couples meet (1940 – present)1 Gen Z consumers are different2 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% of the US
Slide 14: Digital Disruption: Artificial Intelligence (AI)
Digital Disruption: Artificial Intelligence(AI) Collapsing computing costs (1950 – 2019)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 dee
Slide 15: Digital Disruption: COVID Acceleration
Digital Disruption: COVID Acceleration 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 COVID acceleration – “
Slide 16: Investment Themes
Investment Themes Advertising / eCommerce Internet advertising worth $340bn in 2020E2, 52% of total ad spending2 eCommerce est. $4.2trn in 2020E, c16% of total retail sales1 Brand Building → Transaction facilitation Payments / Fintech Global mobile payments worth $2.73tr by 20234 2.1bn consumers to
Slide 17: Software / SaaS Eating The World
Investment Themes Software / SaaS “Eating The World” SaaS market of $141bn in 2019 expected to reach $550bn by 20258 As penetration rises (~30% today5 ) expect more strategic M&A by incumbents SMB adoption / TAM expansion→ Enterprise / ‘rip and replace’ Digital Entertainment $146bn 2019 gaming marke
Slide 18: Digital Marketing / Online Advertising
Digital Marketing / Online Advertising • Global online advertising worth $340bn in 2020E, c. 52% 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
Slide 19: eCommerce
eCommerce • eCommerce growth continues unabated and is forecast at $4.2tr in 2020E, representing c.16% of total retail sales1 • Amazon’s share of US e-commerce now 38%, 4% of all retail spend2 • Mobile now an integral part of the shopping experience, accounting for 63.5% of all retail eCommerce 2 •
Slide 20: 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 21: 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 to be fel
Slide 22: 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 23: 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 24: Digital Entertainment
Digital Entertainment • Video games: $146bn bn market in 2019 → $201bn by 2023E (~8% 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 25: Digital Entertainment
Digital Entertainment • Video games: $146bn bn market in 2019 → $201bn by 2023E (~8% 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 26: 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 • Edge AI, low latency from 5G and advanced machine vision should enable cobots to self-learn tasks • Over 25% of manufacturing tasks that can be
Slide 27: 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 28: 5G – Smartphones / Apple
5G – Smartphones / Apple • The c.1.5bn unit smartphone market is mature: global penetration at c.66%1 and units declined 2% y/y in 20201 • Apple remains unique: premium pricing + services. Wearables (+32% y/y in FQ2’20) AirPod / Watch attach at estimated 7% / 12%2 • Can 5G shorten replacement cycles
Slide 29: Technology Valuations
Technology Valuations Absolute sector valuation (PE): Relative sector valuation (PE): At post GFC highs (1992 – present) At / around market level – with superior balance sheet Source: Ned Davis, 31 July 2020. Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permi
Slide 30: '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 Oct-17 Jan-13 Jan-15 Jun-16 Jun-18 Mar-19 Feb-17 Nov-19 Sep-13 Sep-15 May-14 Jul-20 ML Internet Ind
Slide 31: '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 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Sep-10 Sep-
Slide 32: Rhymes, Not Repeats
Rhymes, Not Repeats Technology outperformance Technology outperformance Sector market cap as % of S&P 500 market cap Market cap weight minus earnings weight ‒ Q1’20: technology earnings +15% y/y vs. +2.5% S&P 500 Source: Ned Davis, July 2020. Past performance is not indicative or a guarantee of futu
Slide 33: Rhymes, Not Repeats
Rhymes, Not Repeats Concentration risk: Concentration risk: % of S&P 500 accounted for by largest 5 stocks1 Weights of Top 5 / bottom half of stocks in the S&P 5002 Source: 1. BoA Global Investment Strategy / Bloomberg, June 2020 2. Ned Davis, June 2020. Past performance is not indicative or a guara
Slide 34: Rhymes, Not Repeats
Rhymes, Not Repeats Investor sentiment AAII Bulls / (Bulls + Bears)1 Late 1990s exuberance 32.9% as at 2 July 20201 Post GFC trauma Source: 1. Ned Davis as at 2 July 2020. Past performance is not indicative or a guarantee of future returns. For non-US investor use only. Please refer to the Important
Slide 35: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 24.1% Semiconductors & Semiconductor Equipment 17.4% 88.0% Large Cap (>$10bn) Interactive Media & Services 16.0% Technology Hardware, Storage & Peripherals 12.7% Mid Cap (>$1bn - $10bn) 11.2% Internet & Direct Marketing Retail 8.0%
Slide 36: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark Activision Blizzard Alphabet Advanced Micro Devices Analog Devices Advantest Corp Apple Large-cap -4.7% Amazon Applied Materials Axon Enterprise Autodesk Blackline Broadcom CloudFlare Cisco Systems Crowdstr
Slide 37: PCT Positioning
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark (%)1,2 6.0% Legacy 4.0% 11% 2.0% Internet 25% 0.0% -2.0% -4.0% -6.0% Semiconductors 21% -8.0% -10.0% -12.0% Cloud: applications 13% -14.0% -16.0% Smartphones Video Games Legacy IoT Cybersecurity Medical Technology Electri
Slide 38: PCT Positioning
PCT Positioning Index Index PCT 1 Top ex Sales growth 2020 – PCT vs. benchmark2 100 Apple 60.0 PE (Median) CY 32.8 27.1 27.0 NY 31.7 23.4 23.2 Earnings growth (Median) CY 4.4 3.8 3.7 50.0 NY 29.2 18.0 18.0 EV/Sales (Mean) CY 10.3 9.4 9.4 NY 8.4 7.9 7.9 EV/Sales (Median) CY 8.3 6.7 6.7 40.0 NY 6.8 5.
Slide 39: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation. 39
Slide 40: Team Biographies
Team Biographies Ben Rogoff – Partner Experience: 25 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 41: Team Biographies cont.
Team Biographies cont. Fatima Iu Experience: 14 years Fatima joined Polar Capital in April 2006 and has 14 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. She is responsible f
Slide 42: Team Biographies cont.
Team Biographies cont. Brad Reynolds Experience: 13 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 43: Portfolio Structure – Liquidity Profile
Portfolio Structure – Liquidity Profile Liquidity horizon evaluation 12,000,000,000 6.00 10,000,000,000 5.00 Days to liquidate 8,000,000,000 4.00 AUM (USDM) 6,000,000,000 3.00 4,000,000,000 2.00 2,000,000,000 1.00 0 - Sep-18 Aug-18 Aug-19 Sep-19 Feb-18 Jun-18 Feb-19 Jun-19 Mar-18 Mar-19 Feb-20 Jun-2
Slide 44: 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 45: 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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