UK Edition
Questor: a well-run technology trust that has fallen by 18pc – this is a buying opportunity
Questor investment trust bargain: Polar Capital Technology was trading at a premium until recently but now sits at a 6pc discount
Technology stocks have suffered severely in the recent stock market sell-off but the tech sector is still where the greatest opportunities for growth are to be found. We look this week at a technology investment trust with a long record of success, an experienced and respected management team, and an uncharacteristically wide discount of 6pc.
For much of last year Polar Capital Technology was trading at a small premium but, as is often the case with investment trusts, last month’s market stumble saw falls in the value of the portfolio’s holdings coincide with a widening of the discount. As a result, the trust’s share price is about 18pc below its peak.
One professional investor who has sensed a bargain is Jonathan Webster-Smith of Brooks Macdonald, the wealth manager. He said: “The trust has gone from a 4pc premium at the end of 2017 to a 6pc discount now. We have had technology as a theme in our customers’ portfolios for many years and we like the Polar Capital approach to it.
"While the trust was trading at a premium it made more sense to buy the firm’s equivalent open-ended fund but now the discount makes the trust attractive.”
He said the management team, led by Ben Rogoff, who has specialised in technology for 22 years and joined Polar Capital in 2003, had a “strong record of stock-picking” that had resulted in substantial outperformance of the tech sector as a whole over five and 10 years.
But Webster-Smith drew attention to the cautious side of the team’s approach, which belies the stereotype of tech investors taking big bets on stocks they hope to become the next Google or Amazon.
“Their record is one of riding strong markets to the full but avoiding the worst when stocks fall,” he said. “They are very aware of valuations in an area where many stocks look expensive. They seek valuation anomalies rather than ‘growth at any price’.”
He said the managers had also sought to protect the fund against severe falls by buying options that would pay out if the sector sold off, while about 7.5pc of the fund was in cash at the end of September.
Webster-Smith acknowledged that tech firms faced challenges such as rising interest rates in America; rate rises make their borrowings more costly to service and make yields on alternative assets such as bonds more attractive. But he said technology remained “a disrupter to how life was, how industry was – it affects every part of the economy, it’s not going away”.
He added: “Now could absolutely be a good time to buy the trust. The discount came quickly, so it could go quickly.”
Questor says: buy
Ticker: PCT
Share price at close: £11.34
Update: TR European Growth
The Brooks Macdonald manager also updated us on TR European Growth, which has fallen by 15pc since we tipped it in April on the basis of his holding it in clients’ portfolios.
He said then that he would be comfortable to hold the trust only while the economic backdrop remained supportive. Unfortunately Europe’s economic revival has slowed markedly in recent months and there are ominous signs that the eurozone debt crisis could erupt again.
Italy is determined to borrow more money to fund tax cuts and improve state benefits despite its huge existing debt burden. It is locked in a battle with the European Commission over its budget and the markets have already caused its borrowing costs to rise sharply.
“These higher bond yields put pressure on the banking system – and a crisis in Italy would dwarf the one in Greece,” Webster-Smith said. “The political situation in Germany has also become less certain.”
It’s time to swallow the loss and sell.
Questor says: sell
Ticker: TRG
Share price at close: 882.5p
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Investment trust news
Several F&C investment trusts have been rebranded as BMO, which took over F&C in 2014. Aberdeen Asian Smaller Companies has changed its name to Aberdeen Standard Asia Focus, named Hugh Young as manager, cut the management fee and said it will make the portfolio more concentrated. Shares in M&G Credit Income began trading on the stock market yesterday.
- Questor archive: telegraph.co.uk/questor