Technology-focused investment trusts return to the top 10 for the first time this year. Kyle Caldwell explains why.
Technology shares returned to form in the first half of 2023 amid excitement over the potential of artificial intelligence (AI) to transform various industries.
In response, the two main routes to gain a diversified basket of technology shares have seen an uptick in demand, with Polar Capital Technology (LSE:PCT) and Allianz Technology (LSE:ATT) returning to our top 10 most-bought table. The table is based on the number of buys among interactive investor customers in June.
The last time Polar Capital Technology featured in the top 10 was November 2022, while Allianz Technology last appeared in February 2022.
In 2022, tech shares came off the boil on the back of interest rate rises. When rates go up, the future earnings expectations of stocks aiming for high growth in the future are devalued. However, so far this year, despite rates continuing to rise in an attempt to combat high inflation, AI excitement has taken over. As a result, the perceived winners of AI have seen their share prices soar, most notably the ‘big seven’: Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), Tesla (NASDAQ:TSLA), Alphabet Inc Class A (NASDAQ:GOOGL) and NVIDIA (NASDAQ:NVDA).
Nvidia is seen as the star stock to play the AI theme as it manufactures the computer chips that leading AI systems are developed and implemented on. These seven companies are responsible for most of the S&P 500’s gains of 16.4% year-to-date.
Both Polar Capital Technology and Allianz Technology have plenty of exposure to the AI theme, but also seek to profit from other trends, such as cloud computing and cybersecurity.
Investors buying in today are potentially picking up bargains, as the duo are trading on respective discounts of 14.8% and 13.1%.
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Scottish Mortgage continues to enjoy plenty of support among DIY investors despite short-term performance disappointing. In mid-May, it reported its annual results, which showed a share price loss of 33.5% (to 31 March 2023). It has been the most-bought investment trust every month since June 2019.
Scottish Mortgage has exposure to the AI theme, but has not benefited from the rally, with its share price down 6.8% year-to-date. This is because it hasn’t owned most of the huge American technology companies that are regarded as the biggest beneficiaries of AI.
City of London, a consistent dividend payer with 56 years of consecutive income increases under its belt, retains its place towards the top of the most-bought table. Its exceptionally experienced and long-tenured manager Job Curtis, who has been at the helm since 1991, and its consistent process make it compelling for investors seeking a core UK equity income option.
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In third place is Greencoat UK Wind (LSE:UKW). A key attraction is that the trust aims to increase its dividends in line with retail price index (RPI) inflation. It has achieved this target every year since the trust launched in 2013.
The renewable energy infrastructure trust has typically traded on a premium since it launched, but is now on a discount of 13.2%. This is due to interest rate rises, which has led to a re-pricing of all risk assets.
With yields of 4% and 5% available on cash and relatively low-risk bonds, there’s less appeal in trying to obtain higher yields – of 6% to 7% - for higher risk in the case of renewable energy infrastructure trusts. As a result, discounts have widened, and Greencoat UK Wind has been part of that trend.
In fifth, up one place, is BlackRock World Mining Trust (LSE:BRWM). Its fund manager Evy Hambro discussed in a recent On The Money podcast episode why we are a couple of years into a potential new commodities ‘supercycle’, where demand outweighs supply for a sustained period.
In sixth and eighth place respectively are multi-manager trusts F&C Investment Trust (LSE:FCIT) and Alliance Trust (LSE:ATST). Both are considered potential one-stop shops for investors due to the diversification they offer and their reliable dividends - both have increased payouts for more than 50 years.
Rounding off the top 10, are 3i Group (LSE:III) in ninth place and Merchants Trust (LSE:MRCH) in 10th. The former invests in private equity, and has produced eye-catching performance over the past year, delivering a share price total return of 82.8%. In contrast, the second and third-best performers in the sector, Dunedin Enterprise (LSE:DNE) and Oakley Capital Investments (LSE:OCI), are up 24.5% and 15.4%. On the back of its strong performance, 3I Group is trading on a premium of 12.9%, which is something to be wary of as high premiums do not tend to be sustainable over the long term.
Merchants Trust is managed by Simon Gergel and aims to deliver an above-average level of income through investing mainly in higher-yielding large UK companies.
Top 10 most-popular investment trusts in June 2023
|Rank||Trust||Change from May||One-year performance to 1 July 2023 (%)||Three-year performance to 1 July 2023 (%)|
|1||Scottish Mortgage||No change||-8.1||-18.1|
|2||City of London||No change||3.9||35.7|
|3||Greencoat UK Wind||Up one||-1||16.8|
|4||Polar Capital Technology||New entry||20||6.8|
|5||BlackRock World Mining||Up one||12.2||89.9|
|6||F&C Investment Trust||Down one||9.3||33.1|
|7||Allianz Technology||New entry||24.5||14.4|
|8||Alliance Trust||No change||13.8||36.7|
|9||3i Group||Down two||82.8||160.3|
|10||Merchants Trust||Down one||2.8||61.7|
Source: interactive investor. Performance figures: FE fundinfo. Note: the top 10 is based on the number of “buys” during the month of June.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.