Ian Cowie: why I’m a fan of this tech behemoth

Nobody expected this £7.9 billion investment trust to double in the next year last May - and quite a few predicted an imminent correction - but the share price has soared 107% higher since then. 

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Its extraordinary sustained success demonstrates, yet again, the truth of the Square Mile saying: bears (pessimists) sound clever but bulls (optimists) make money.

Never mind the generalities, six of the Magnificent Seven giant technology businesses have reported results for the last quarter recently, with most surprising on the upside, helping to support valuations in this sector. 

The search engine-owner Alphabet Inc Class A (NASDAQ:GOOGL), the iPhone-maker Apple Inc (NASDAQ:AAPL) and digital retailer Amazon.com Inc (NASDAQ:AMZN), saw the sharpest share price gains, while the electric car company, Tesla Inc (NASDAQ:TSLA), also accelerated. 

But the Facebook owner Meta Platforms Inc Class A (NASDAQ:META) and, to a lesser extent, the software giant Microsoft Corp (NASDAQ:MSFT) were depressed by worries about heavy investments in artificial intelligence (AI).

The chip-maker NVIDIA Corp (NASDAQ:NVDA), which is a big beneficiary of AI spending, is due to report on 20 May.

Google is in the enviable position of its name being widely used as a verb for the service it provides. 

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By contrast, rumours that  META will withdraw from the “metaverse” - a kind of alternative reality that was yesterday’s big idea of what tomorrow might look like - prompts City cynics to joke that could disappoint both its users. 

Fortunately, it is not necessary to try to pick winners in AI or new technology when some specialist investment trusts can already demonstrate expertise in doing so. 

Step forward, Polar Capital Technology Ord (LSE:PCT), which leads the Association of Investment Companies (AIC) Technology and Technology Innovation sector over the last decade, five years and one-year periods.

PCT achieved that impressive hat-trick by delivering total returns of 997% and 176% over the long and medium term above, prompting those predictions of imminent doom mentioned earlier, before soaring another 107% over the last year. 

Its biggest three underlying holdings are Nvidia, followed by Alphabet and the self-descriptive Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM). Other top holdings include Apple, Broadcom Inc (NASDAQ:AVGO) and Meta.

Bears or pessimists continue to argue that all the above businesses and this investment trust are overpriced and that these share prices must fall, just as they did when the dotcom bubble burst at the beginning of this century. 

But that argument overlooks the salient fact that, unlike the tech crash 26 years ago, which I remember well, all the above businesses are profitable, with revenues rising more rapidly than almost any comparable companies.

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To take just one example of how their products and services have become ubiquitous, consider the fact that even the wealthiest person in the world could not buy a touchscreen smartphone 20 years ago. Now, since Steve Jobs unveiled the iPhone in January 2007, everybody has a smartphone with its own ecosphere of apps.

PCT’s main manager, Ben Rogoff, is due to mark two decades at the digital helm of this fund in June this year.

By contrast, PCT’s nearest rival, Allianz Technology Trust Ord (LSE:ATT), has delivered total returns of 991%, 124% and 71% over the usual three periods.

In addition to most of the blue-chip tech stocks mentioned earlier, ATT also has top 10 exposure to less well-known names including two companies that make the machines that make microchips, Lam Research Corp (NASDAQ:LRCX) and KLA Corp (NASDAQ:KLAC). 

Unfortunately for ATT, with rising worries about whether billions being poured into AI will ever be seen again, Mr Market favours familiar blue-chip stocks over smaller rivals.

Neither PCT nor ATT pays any dividends and both are trading at modest discounts of about 8% below their net asset value (NAV). Similarly, both have reasonable ongoing charges of 0.77% and 0.62% respectively.

Whatever the pessimists might say, I am delighted to have owned PCT for more than a decade, having transferred these shares from a paper-based broker when they traded at 43p in September 2013, allowing for a subsequent 10-for-one stock split. They were priced at 652p on Thursday.

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Similarly, I paid $23.75 per AAPL share in February 2016, allowing for a subsequent four-for-one stock split, for shares that were priced at $287 this week. AAPL is now my third-most valuable holding.

MSFT has not done nearly so well, with shares I bought for $233 in January 2023, opening trading at $414 on Thursday. Even so, I really mustn’t grumble.

Perhaps perversely, I draw comfort from the fact that bears continue to predict imminent doom for this sector. After all, they have been calling the top of this bull market all the way up - and it hasn’t done them much good.

It seems to me that shunning new technology today is like clinging to canal shares in the age of steam or owning square-rigged clippers when oil-powered ships began to sail without wind. 

Nobody knows what will happen next in the short term, but buying shares in the future is better for long-term investors today than fretting about the past.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple, Microsoft and Polar Capital Technology as part of globally diversified portfolio of investment trusts and other shares.