Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — Shareholder Meeting (September 2018)
60 slides from Polar Capital Technology Trust's shareholder meeting presentation, Sep 6, 2018
Slide 1: Polar Capital Technology Trust AGM Presentation
Polar Capital Technology Trust AGM Presentation 6 September 2018 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 2018
Results As At 30 April 2018 Year ended Year ended Change 30/04/17 30/04/18 (y/y) Net Assets £1,252,525,000 £1,551,611,000 +23.9% NAV per ordinary share 945.39p 1159.69p +22.7% Price per ordinary share 947.00p 1148.00p +21.2% Benchmark Change +17.1% Ordinary shares in issue 132,487,000 133,795,000 +
Slide 3: PCT As At 31 August 2018
PCT As At 31 August 2018 Year ended Year ended Change As at 30/04/17 30/04/18 (y/y) 31/08/18 Net Assets £1,252,525,000 £1,551,611,000 +23.9% £1,870,778,000 NAV per ordinary share 945.39p 1159.69p +22.7% 1397.93p Price per ordinary share 947.00p 1148.00p +21.2% 1378.00p Benchmark Change +17.1% Ordina
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. FTSE World TR since Apr 2017 • Global equities (FTSE World + 7.7%) added to their post financial crisis gains as the strengthening global economy provided upward momentum to earnings estimates that also benefited from the weaker USD and US tax reform. • Sterl
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since Apr 2017 • Small-cap US technology stocks underperformed during the year (c. 7%) as earlier Trump-related relative strength unwound. • NAV performance (+22.7%) exceeded the benchmark by 5.6%. – Key positives: Amazon, Square, Software-as-
Slide 6: Full Year Review: Geographic Performance
Full Year Review Geographic Performance (April 2017 – Present) Source: Bloomberg, as at 31 August 2018. Returns shown in Sterling. Past performance is not indicative or a guarantee of future returns. For non-US investor use only. Please refer to the Important Information at the end of this presentat
Slide 7: Valuations
Valuations Absolute sector valuation (PE): 1992 - Present Source: Ned Davis, 17 August 2018. Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to w
Slide 8: Valuations
Valuations Relative sector valuation (PE): 1992 - Present Source: Ned Davis, 17 August 2018. Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to w
Slide 9: 'Next-Generation' Valuations
‘Next-Generation’ Valuations Internet valuation: EV / forward 2 year EV/EBITDA levels 25 20 15 10 5 0 Jan-13 Nov-13 Oct-14 Sep-15 Aug-16 Jul-17 Jun-18 ML Internet Index Source: Bloomberg, 29 June 2018. Past performance is not indicative or a guarantee of future returns. For non-US investor use only.
Slide 10: 'Next-Generation' Valuations
‘Next-Generation’ Valuations Software as a Service (SaaS) valuation: EV / forward 12 month revenue multiples Source: KeyBanc, August 2018. Past performance is not indicative or a guarantee of future returns. For non-US investor use only. Please refer to the Important Information at the end of this p
Slide 11: 'Next-Generation' Valuations
‘Next-Generation’ Valuations IT security valuation: EV / forward 12 month revenue multiples Source: Citi Research, FactSet, July 2018. Past performance is not indicative or a guarantee of future returns. For non-US investor use only. Please refer to the Important Information at the end of this prese
Slide 12: 'Next-Generation' Valuations
‘Next-Generation’ Valuations Cloud vs. legacy valuation EV / trailing 12 month revenue multiples 14x 12x EV/ trailing 12 month sales 10x 8x 6x 4x 2x 0x Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jan-13 Mar-10 Jan-11 Mar-11 Jan-12 Mar-12 Mar-13 Jan-14 Mar-14 Jan-15 Mar-15 Jan-16 M
Slide 13: Valuations Supported By Elevated M&A
Valuations Supported By Elevated M&A… Technology M&A since 19951 Select M&A activity2 Date Target Acquirer Premium Value $m May-12 Ariba SAP 19% 4,324 Aug-12 Kenexa IBM 42% 1,260 Oct -12 OPNET Riverbed 31% 912 June-13 ExactTarget Salesforce 50% 2,419 Jul -13 Sourcefire Cisco 29% 2,185 Dec-13 Respons
Slide 14: …and Strengthening Fundamentals
…and Strengthening Fundamentals Worldwide IT spending (2016 – 2022E)1 “I’ve never seen a demand environment like this. Every CEO is using the positive economic environment, as well as the domestic tax cuts, as a way to accelerate their digital transformation.”3 - Mark Benioff, CEO Salesforce.com S&P
Slide 15: Digital Disruption
Digital Disruption Source: Polar Capital. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 15
Slide 16: Digital Disruption: Accelerating Tech Adoption
Digital Disruption: Accelerating Tech Adoption Technology Adoption Curves: 1867 - 20171 2 Source: 1. KPCB, 2017. 2. http://www.visualcapitalist.com/internet-minute-2018/. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in th
Slide 17: Digital Disruption: Technology Deflation
Digital Disruption: Technology Deflation Computing: The cost of 1m transistors AWS Compute Cost + Growth Storage: The cost of a gigabyte of data Source: KPCB, August 2018, historical data. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 17
Slide 18: Digital Disruption: New Networks / Scale
Digital Disruption: New Networks / Scale Centralised, decentralised and distributed networks1 >2tr annual searches 552m active users 5 apps > 1bn MAU $768bn GMV in F18 2.2bn MAU, 1.45bn DAU 1.3m properties online 20+ minutes/user/day 1.5m room nights/day WeChat: >1bn MAU >5bn rides, 78 countries 562
Slide 19: Digital Disruption: Artificial Intelligence (AI)
Digital Disruption: Artificial Intelligence (AI) Collapsing Computing Costs (1850 – 2010)1 “Artificial Intelligence technologies will be the most disruptive class of technologies over the next 10 years due to radical computational power, near-endless amounts of data, and unprecedented advances in de
Slide 20: Digital Disruption: Retail
Digital Disruption: Retail US Retail Store Closings: 1995 – 2017 YTD1 Amazon Prime US Subscribers : 2013 – June 20182 “I don't think retail is dead. “This business is all about reducing response time. Mediocre retail experiences are dead.” In fashion, stock is like food. It goes bad quickly” - Neil
Slide 21: Digital Disruption: Brands
Digital Disruption: Brands Amazon Basics, US online market share1 “Big brands are being nibbled to death”2 – IAB CEO Randall Rothenberg Source: 1. Amazon market share as at August 2016. 2. http://www.businessinsider.com/new-breed-programmatic-first-ad-agencies-grabbing-business-ignored-by-traditiona
Slide 22: Digital Disruption: Brands
Digital Disruption: Brands An extra large, wet, double-shot Coffee caramel macchiato (and WiFi) £1.00 £4.00 It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the imme
Slide 23: Digital Disruption: Content (Is Not King)
Digital Disruption: Content (Is Not King) US Recorded Music Revenues by Format (US$bn)1 Unique Artist Listening (2014 – 2017)2 • Number of TV channels watched <10% of those received while Pay TV ARPU 10-15x > Netflix1 • Spotify = 180m active users, 83m paid subscribers3, c.20% of global music indust
Slide 24: Digital Disruption: Brands
Digital Disruption: Brands • Free-to-play ‘shooter’ where you battle 99 other players solo / team • Released in July 2017 but became popular once a ‘Battle Royale’ mode was introduced following the success of PC-based PlayerUnknown’s Battlegrounds (PUBG) • More than just a ‘Call of Duty for kids’ –
Slide 25: Digital Disruption: Brands
Digital Disruption: Brands 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 immediately preceding 12 months is available upon request. For non-US investor use on
Slide 26: Digital Disruption: Brands
Digital Disruption: Brands 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 immediately preceding 12 months is available upon request. For non-US investor use on
Slide 27: Digital Disruption: Brands
Digital Disruption: Brands Source: 1. Epic Games. 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 immediately preceding 12 months is available upon request. For
Slide 28: Core Investment Themes
Core Investment Themes eCommerce / payments eCommerce worth $342bn in the US2 and $467bn in China4 last year Penetration just 9% / 8% / 11% in US2 / Europe3 / China5 Number of SKUs→ Logistics + Ecosystem Digital Advertising / Marketing Internet advertising worth $180bn this year6, Social ads ~16% on
Slide 29: Core Investment Themes
Core Investment Themes Software As A Service Usage based pricing disrupting $150bn2 maintenance market As penetration rises (~27% today2 ) expect more strategic M&A by incumbents SMB adoption / TAM expansion→ Enterprise / ‘rip and replace’ Gaming $100bn gaming market5 c. 3x > movie box office6, Mobi
Slide 30: eCommerce / Payments
eCommerce / Payments • eCommerce growth continues unabated and is forecast to reach $1,9tr in 2016, representing c. 8.7% of total retail sales1 • Mobile becoming an integral part of the shopping experience, enabling greater volumes and new use cases (eg. Uber) • Improvements in payments / delivery c
Slide 31: eCommerce / Payments
eCommerce / Payments • The shift to mobile remains the central and dominant trend in payments while merchant adoption represents the biggest obstacle • Over time the smartphone is likely to replace the physical wallet, aided by the use of biometric authentication • As payments are taken out of the b
Slide 32: Digital Advertising / Marketing
Digital Advertising / Marketing • Global online advertising expected to reach $195bn in 2016, c. 20% of total advertising spend1 • Paid Search and Social Media markets expected to grow 16% and 33% respectively in 20172 • Size matters: US market dominated by Alphabet and Facebook, who combined captur
Slide 33: Digital Advertising / Marketing
Digital Advertising / Marketing • Global online advertising expected to reach $195bn in 2016, c. 20% of total advertising spend1 • Paid Search and Social Media markets expected to grow 16% and 33% respectively in 20172 • Size matters: US market dominated by Alphabet and Facebook, who combined captur
Slide 34: Software As A Service (SaaS)
Software As A Service (SaaS) • The rental / usage-based model is expanding the software market while threatening incumbent franchises / maintenance • Enabled by Cloud, software as a service (SaaS) targets a $164bn opportunity by 2022, c. 30% penetrated today1 • Recent acceleration in M&A supportive
Slide 35: Gaming
Gaming • Video game industry worth $100bn in 2016 → $118bn by 2019, driven by new console cycle, mobile and AR/VR1 • Improving market dynamics: industry consolidation + focus on blockbuster franchises = greater scale / profitability / barriers to entry • The shift to digital distribution (full game
Slide 36: Cyber Security
Cyber Security • Security remains one of the more attractive areas within traditional IT budgets, expected to grow c. 10% through 20201 • Favourable regulatory backdrop likely to persist – US National Action Plan calls for a c. 35% increase in spending to $19bn in FY172 • However, priorities shiftin
Slide 37: Cloud Infrastructure
Cloud Infrastructure • Having debunked many of the earlier barriers to adoption, we expect Cloud migration to accelerate over the coming years • Computing / storage costs headed lower: Amazon Web Services (AWS) has lowered prices 61 times since launch1 • Expect ‘all’ incremental capacity added beyon
Slide 38: Cloud Infrastructure
Cloud Infrastructure • Having debunked many of the earlier barriers to adoption, we expect Cloud migration to accelerate over the coming years • Computing / storage costs headed lower: Amazon Web Services (AWS) has lowered prices 61 times since launch1 • Expect ‘all’ incremental capacity added beyon
Slide 39: Robotics / Automation
Robotics / Automation • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Over 25% of manufacturing tasks that can be automated may be performed by robots over the next decade1 • Human-robot collaboration will radically alter the way
Slide 40: Robotics / Automation
Robotics / Automation • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Over 25% of manufacturing tasks that can be automated may be performed by robots over the next decade1 • Human-robot collaboration will radically alter the way
Slide 41: 'More Than Moore' – Rising Semiconductor Complexity
‘More Than Moore’ – Rising Semiconductor Complexity • Cost reductions tied to shrinkage stops <20nm, diluting benefits of migration to finer nodes. Opportunity for ‘fast followers’. • Increasing complexity drives up capital intensity on a per wafer basis benefiting semiconductor equipment (SPE) vend
Slide 42: Smartphones / Apple
Smartphones / Apple • The smartphone market is now mature: global penetration at c.66%1 and unit growth of just +2.7% in 2017 and -5.6% y/y in Q417 2 • The ‘unit’ super-cycle’ has given way to a ‘value’ one, driven by average selling prices which increased 6% in 20173 • Replacement cycles are extend
Slide 43: Emerging Themes
Emerging Themes Source: Gartner, August 2018. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 43
Slide 44: Voice As A Computing Interface
Voice As A Computing Interface • Human speak 150 vs. type 40 words per minute on average → voice should become the most efficient form of computing input1 • Voice queries already account for 20% of Android mobile app searches in the US, while Siri handles >1bn requests per week2 • “As speech recogni
Slide 45: Electric / Autonomous Vehicles
Electric / Autonomous Vehicles • Automotive market ripe for reinvention: connectivity / infotainment, 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 ADAS / autonomous vehicle
Slide 46: Augmented / Virtual Reality (AR / VR)
Augmented / Virtual Reality (AR / VR) • Nascent today, but massive LT opportunity (TAM = $80bn by 20251) • Technology driven by smartphone / display / sensor advances • Gaming primary market today, but additional applications include live events (sports / concerts) patient monitoring, real estate an
Slide 47: eSports
eSports • eSports = Competitive gaming as a spectator sport • Social media has grown eSports viewership making professional leagues with full time players / teams possible – 148m enthusiasts and a further 144m occasional viewers – 40% of eSports viewers do not play the games themselves – Twitch reac
Slide 48: PCT Positioning As At 31 July 2018
PCT Positioning As At 31 July 2018 Sector exposure (%) Market cap exposure (%) Internet Software & Services 26.0% Software 24.6% Large Cap (>$10bn) 77.4% Semiconductors & Semiconductor Equipment 16.2% Mid Cap (>$1bn - $10bn) 20.9% Technology Hardware, Storage & Peripherals 9.5% Internet & Direct Mar
Slide 49: PCT Positioning As At 31 July 2018
PCT Positioning As At 31 July 2018 Largest overweights Largest underweights Market cap exposure versus benchmark Activision Blizzard Amadeus IT Holding Advanced Micro Devices^ Analog Devices Amazon Apple Arista Networks Broadcom Large-cap -12.2% Axon Enterprise Canon Inc Cognex Corp Cisco Systems Do
Slide 50: PCT Positioning: Thematic breakdown
PCT Positioning As At 31 July 2018 Thematic breakdown1,2 Thematic breakdown relative to benchmark (%)1,2 10.0% Legacy 10% 5.0% Internet 26% 0.0% Semiconductors 20% -5.0% -10.0% Cloud: applications Smartphones 13% -15.0% 2% Apple Medical Technology 8% 1% -20.0% IoT Other Smartphones Materials Cloud:
Slide 51: PCT Positioning: Portfolio metrics vs benchmark
PCT Positioning As At 31 July 2018 Index Index ex PCT1 Top 100 Apple Sales growth 2019 – PCT vs. benchmark2 70.0 PE (Median) CY 29.9 19.7 20.0 NY 26.1 18.1 18.1 Earnings growth (Median) CY 20.4 18.1 18.0 NY 15.9 11.2 11.2 60.0 EV/Sales (Mean) CY 7.0 5.0 5.0 NY 5.7 4.4 4.5 EV/Sales (Median) CY 6.4 4.
Slide 52: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation. 52
Slide 53: Introduction To The Team
Introduction To The Team • Technology is at the core of the Polar Capital business • One of the largest technology franchises in Europe with c.US$5.0bn under management • Seven dedicated technology specialists – strong multi-cycle track record Global Technology Fund Polar Capital Technology Trust Fu
Slide 54: Team Biographies
Team Biographies Ben Rogoff, Director – Technology 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 h
Slide 55: Team Biographies cont.
Team Biographies cont. Xuesong Zhao Experience: 11 years Xuesong joined Polar Capital in May 2012 and has 11 years’ investment experience. He is a lead manager of the Polar Capital Automation and Artificial Intelligence Fund and is a Fund Manager on the Polar Capital Technology Trust and Polar Capit
Slide 56: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency Inflation adjusted UK holiday expenditure: 1951-1996 overseas domestic Source: seasidehistory.co.uk. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 56
Slide 57: 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 58: 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 59: 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 60: 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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