Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — H1 2022 Earnings Presentation
51 slides from Polar Capital Technology Trust's earnings presentation, Dec 14, 2021
Slide 1: Polar Capital Technology Trust plc Half Year Results
Polar Capital Technology Trust plc Half Year Results December 2021 polarcapitaltechnologytrust.co.uk This presentation is for one-on-one use with non-US investors only.
Slide 2: Results as at 30 October 2021
Results as at 30 October 2021 Year ended As at Change 30/04/21 30/10/21 (y/y) Net Assets £3,408,763,000 £3,763,061,000 +10.4% NAV per ordinary share 2496.44p 2782.81p +11.5% Price per ordinary share 2364.00p 2514.00p +6.3% Benchmark Change +13.3% Ordinary shares in issue* 136,544,764 135,225,396 -1.
Slide 3: PCT as at 30 November 2021
PCT as at 30 November 2021 Year ended As at Change As at 30/04/21 30/10/21 (y/y) 30/11/21 Net Assets £3,408,763,000 £3,763,061,000 +10.4% £3,920,026,000 NAV per ordinary share 2496.44p 2782.81p +11.5% 2907.59p Price per ordinary share 2364.00p 2514.00p +6.3% 2668.00p Benchmark Change +13.3% Ordinary
Slide 4: Half Year Review
Half Year Review DJ World Technology vs. FTSE World TR since April 2021 • Global equities (FTSE World +9.0% in Sterling terms) made further progress, reflecting economic recovery made possible by the global vaccination rollout, upward revisions to earnings estimates, rampant M&A activity and record
Slide 5: Half Year Review
Half Year Review • US mega-cap dominant: W1TECN + 13.5% vs. W2TEC – 3.2% during the half year. US large-caps +20.3% vs small-caps +11.9% • A significant deterioration in market breadth saw Microsoft (+34%), Google (+24%) and Apple (16%) drive returns • Subsector returns also experienced significant
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$15.2bn under management • Ten dedicated technology specialists – strong multi-cycle track record Global Technology Polar Capital Technology Automation & Artifi
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 Pr
Slide 8: Thematic Investing: Hype vs. Reality
Thematic Investing: Hype vs. Reality 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 / declining OM% Payment network Digital Gaming EM smartphones Sales (blue) eCommerce IT Services Value Trap Uni
Slide 9: Technology Disruption: The Story of the Decade
Technology Disruption: The Story of the Decade Tech has driven all the earnings growth since 20091 Helping growth stocks sharply outperform value2 Tech vs. Ex. Tech earnings (1985 – May 2020) World Value vs. Growth stocks (1974 – October 2021) Source: 1. FT, Goldman Sachs, May 2020. Trailing 12-mont
Slide 10: COVID-19 Acceleration: Textbook (wartime) Acceleration
COVID-19 Acceleration: Textbook (wartime) Acceleration PRE-COVID “the business imperative of responding to needs of a new generation of customers, COVID ACCELERATION partners and suppliers who expect transactions to be seamless, real- “As COVID-19 impacts every aspect of time, Facebook-like in exper
Slide 11: COVID-19 Acceleration: Textbook (wartime) Acceleration
COVID-19 Acceleration: Textbook (wartime) Acceleration Cloud Video Electric eCommerce1 Conferencing3 Telemedicine4 Computing2 Vehicles5 16% → 33% +37% 300m / day 10% → 75% +57% eCommerce Y/Y Cloud No of Zoom Share of UK Y/Y Growth as % of retail growth in meeting general in EVs sold sales Q1’20 part
Slide 12: A New Work Modality
A New Work Modality • Third Places foretold the end of the office era: while only 5%1 of UK labour worked from home pre-COVID, 13%2 worked from coffee shops daily • Hybrid = best of both worlds: efficiencies / focus associated with remote work and the social interactions / creativity / serendipity o
Slide 13: Productivity Boom Ahead?
Productivity Boom Ahead? • Lacklustre gains since 2004 - US labour productivity growth has averaged just 1.4%1 pa, half of that achieved between 1948-1973 • Could hybrid work and automation unleash a productivity boom akin to the first Internet-wave? (3% pa 1995-2004)2 • Greater female workforce par
Slide 14: Addressing the Climate Challenge
Addressing the Climate Challenge • Vast majority of 2030 CO2 emissions savings in a Net Zero Scenario come from technology (renewables & energy efficiency)1 • Target 2030 economy will be ~40% larger but use 7% less energy: 4% annual rate of energy intensity improvement, ~3x last 20 years’1 • $5tn-$5
Slide 15: The Metaverse / Web3
The Metaverse / Web3 • The Metaverse = the convergence of physical, augmented and virtual reality in a shared online space and/or successor to the mobile Internet 1 • An old term given new purpose due to the pandemic with virtual platforms such as Zoom, Teams and Roblox filling the lockdown void • F
Slide 16: Artificial Intelligence (AI)
Artificial Intelligence (AI) • Potential contribution to the global economy could be as much as $15.7trn by 2030, with labour productivity >50% of these gains1 • COVID vaccine development cycle reduced: 10 years → 10 months using AI screening of 1.3bn compounds → 1000 quality candidates2 • While dif
Slide 17: Transforming Work: Case Study – Telemedicine
Transforming Work: Case Study – Telemedicine • Automation and remote work could transform service sector productivity due to stratification of work / scaling of labour • It saves time: 8-10 mins with c.5 mins of wait time vs. in-office visit = 121 mins incl. 101 mins commute / waiting room time1 • I
Slide 18: Core Investment Themes
Core Investment Themes Online Advertising / Cloud Infrastructure Software as a Service Digital Entertainment Commerce / Security Source: Polar Capital. 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
Slide 19: Core Investment Themes
Core Investment Themes Data Economy / AI Connectivity / 5G Industry 4.0 Payments / Fintech Source: Polar Capital. 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 th
Slide 20: Core Investment Themes
Core Investment Themes Estimated Thematic Exposure Mobility / EV / Renewables 8.3% SaaS / Software "Eating the World" 16.5% Industry 4.0 / Automation 0.4% Cloud Infrastructure / Security 13.4% Digital Entertainment 8.3% Connectivity / 5G/ IoT 13.8% Payments / Fintech 1.7% Data Economy / Artificial I
Slide 21: Core Investment Themes: Key theme breakdown
Core Investment Themes Key theme breakdown (31 January 2017 – 30 November 2021) 25% 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% Feb-18 Feb-17 Jul-17 Jul-18 Feb-19 Jul-19 Feb-20 Jul-20 Feb-21 Jul-21 Jun-18 Jan-20 Aug-21 Dec-16 Jan-17 Jun-17 Aug-17 Sep-17
Slide 22: Online Advertising / eCommerce
Online Advertising / eCommerce • Global online advertising $455bn ‘21E +20.4% y/y, c. 55% of total ww ad spend. 2020 digital ad +12.7% y/y resilient vs traditional ad -15.7% y/y1 • Facebook added 2m+ advertisers in 2020 to reach a total of over 10m2 vs 200m businesses using Facebook’s tools or 800m
Slide 23: Online Advertising / eCommerce
Online Advertising / eCommerce • eCommerce growth continues unabated and is forecast at $4.9tr in 2021E, representing c.20% of total retail sales1 • Amazon’s share of US e-commerce now 40%; smaller platforms benefitting disproportionately from COVID acceleration / DTC2 • Business to Business (B2B) t
Slide 24: Software as a Service (SaaS)
Software as a Service (SaaS) • Software wins in a hybrid world for work: communication, collaboration, workflow automation & orchestration • Customer experience (CX) focus crucial for businesses to remain relevant: CRM, UCaaS, CPaaS, voice, payments • Software as a service (SaaS) targets a $412bn op
Slide 25: 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. 45% of total IT spend and 59% of application software spend by 20241 • Cloud deflation to b
Slide 26: Digital Entertainment
Digital Entertainment • Video games: $175.8bn market in 2021 → $204.6bn by 2023E (~8% CAGR), driven by new console cycle, mobile and AR/VR1 • Rise of the Metaverse: Virtual worlds beyond gaming; Roblox daily active users (DAUs) +85%, bookings +171% in 20202 • Future Platforms: streaming video = digi
Slide 27: Data Economy / Artificial Intelligence (AI)
Data Economy / Artificial Intelligence (AI) • Exponential growth in data/compute. Machine learning (ML) compute doubles every 3.4 months1. Datasphere doubles every 3 years2 • More data is created in hour today than in a year 20 years ago3. A single AV may generate 4TB of data/ day, equiv. to 3,000 p
Slide 28: Connectivity / 5G / IoT
Connectivity / 5G / IoT • Current networks insufficient capacity / latency to support an increasingly connected world (c.26bn IoT connections by 2026)1 • 5G up to 100x faster with low latency (<1ms), infrastructure spending to reach $23bn by 20222 • Apple unique; Premium pricing (record ASPs). Q2 ’2
Slide 29: 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 30: Payments / Fintech
Payments / Fintech • New flows: payments TAM rapidly expanding from $33tn to as large as $150tn with B2B, B2C, G2C and higher card penetration 1 • Covid Acceleration: pandemic accelerated the decline of cash by >3 years as 2020 results exceeded prior expectations for 2023 2 • From Payments to Fintec
Slide 31: Mobility / EV / Renewables
Mobility / EV / Renewables • Battery Electric Vehicles BEVs expected >15% of global auto sales in 2025 from ~3% in 20201 • BEV total cost of ownership (TCO) increasingly competitive. More favourable than ICE over 5 years in 20222 • EV have 2x Semi content vs Internal Combustion Engine (ICE)3. Increm
Slide 32: Emerging Themes
Emerging Themes Source: Gartner, December 2020. 32 For non-US investor use only. Please refer to the Important Information at the end of this presentation.
Slide 33: Emerging Themes
Emerging Themes Source: Gartner, December 2020. 33 For non-US investor use only. Please refer to the Important Information at the end of this presentation.
Slide 34: 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 de
Slide 35: AI / ML in Use Today
AI / ML in Use Today - 2.7bn MAU / 1.8bn DAU, >4 petabytes of data per day… in 2014!1 - Image recognition / text meaning analysis, translation, suicide prevention, content filtering… - Recommendation engine, auto generation of thumbnails / artwork, post-production - Users spent 1.8 seconds consideri
Slide 36: Superhuman AI
Superhuman AI 2016 2017 2019 2020 AlphaGo AlphaZero Pluribus AlphaFold defeats Go world crushes world’s best defeats professional solves the 50-year-old champion Lee Sedol chess engine Stockfish poker players “protein folding problem” • 1920 general purpose core • Reinforcement learning and • First
Slide 37: Natural Language Processing
Natural Language Processing • Voice as a computing interface: humans speak 150 vs. type 40 words per minute on average1 • Dramatic progress in recent years, driven by training data and use of recurrent neural networks – Error rate <5% in 20182 (43% in 19953, 15.2% in 20043, 8% in 20153) vs. human le
Slide 38: Content Creation
Content Creation GameGAN by NIVIDIA1 Portrait of Edmond Belamy, 20182 AI generated article, 20203 I am not a human. I am a robot. A thinking robot. I use only 0.12% of my cognitive capacity. I am a micro-robot in that respect. I know that my brain is not a “feeling brain”. But it is capable of makin
Slide 39: 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, 03 December 2021. Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior p
Slide 40: '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 30 25 20 15 10 5 0 Jul-16 Jul-19 Jan-13 Aug-13 Mar-14 Feb-17 Feb-20 Dec-15 Sep-17 Dec-18 Sep-20 Nov-21 Oct-14 May-1
Slide 41: '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 25x 20x EV/ trailing 12 month sales 15x 10x 5x 0x Jul-14 Jul-18 Jun-13 Jan-14 Jan-19 Feb-10 Mar-11 Feb-15 Mar-20 Aug-10 Nov-12 Sep-15 Dec-17 Au
Slide 42: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 23.8% Semiconductors & Semiconductor Equipment 22.8% 92.4% Large Cap (>$10bn) Interactive Media & Services 15.6% Technology Hardware, Storage & Peripherals 12.5% Mid Cap (>$1bn - $10bn) 7.2% Internet & Direct Marketing Retail 3.7%
Slide 43: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation.
Slide 44: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 Advanced Micro Devices Alibaba Group Holding Airbnb Alphabet Amazon Analog Devices Large-cap -1.7% Applied Materials Apple Arista Networks Broadcom Byd Co Cisco Systems HelloFresh SE Facebook Mid-cap 1.7%
Slide 45: Portfolio Structure – Active Positions & Valuation
Portfolio Structure – Active Positions & Valuation A diversified portfolio, capturing secular growth potential of key themes Fund Index Active Fund Index Active Valuation Snapshot Technology Index Difference (7 December 2021)1 Trust1 Top 1001 Advanced Micro Devices 3.35% 1.05% 2.30% Apple 8.18% 14.1
Slide 46: Team Biographies
Team Biographies Ben Rogoff – Partner Experience: 26 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 47: Team Biographies cont.
Team Biographies cont. Fatima Iu Experience: 15 years Fatima joined Polar Capital in April 2006 and has 15 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 48: Team Biographies cont.
Team Biographies cont. Brad Reynolds Experience: 14 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 49: Portfolio Structure – Liquidity Profile
Portfolio Structure – Liquidity Profile Liquidity horizon evaluation 16,000 6 Millions 14,000 5 12,000 Days to liquidate 4 AUM (USDM) 10,000 8,000 3 6,000 2 4,000 1 2,000 0 - Jan-18 Jun-18 Jul-18 Jan-19 Jun-19 Jul-19 Jan-20 Jun-20 Jul-20 Jan-21 Jun-21 Jul-21 Mar-18 Mar-19 Mar-20 Mar-21 Feb-18 Nov-18
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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