So who’s right?

Investment is a subjective business. While there are all sorts of sophisticated models for valuing assets and markets, the interpretation of those models relies on qualities such as instinct and experience. Two different investment professionals, presented with the same data, may take opposite views of what the numbers mean. Investors must then decide which of those views they feel more comfortable with.

Coverage of two different investment trusts in recent days provides a good example of this. First, Citywire reported on comments made by Ben Rogoff, the manager of Polar Capital Technology, who argues that despite the elevated valuations of leading technology stocks, we are a long way from bubble territory. And second, analysis conducted by Investors Chronicle pointed to the way in which Monks Investment Trust has been paring back its exposure to some of these more risky stocks.

The contrast is fascinating, not least because Baillie Gifford, the investment manager that runs Monks, is often associated with significant bets on the tech sector. Rogoff and his colleagues at Polar, meanwhile, are widely regarded as very thoughtful investors in the technology space.

One interesting point here lies in the different types of exposure that the investment trust sector offers. Monks is a large generalist fund, offering a broad spread of assets; investors get the diversification benefits of this, as well as the opportunity to outperform if the convictions of the management team prove well-founded. Polar Capital Technology, by contrast, is much more specialist, giving investors a focused play on one particular area of the market.

There is room for both in the same portfolio. Indeed, the so-called “barbell” investment strategy is well established. The idea is that you have a solid core of investments featuring a broad spread of holdings at the centre of your portfolio, providing diversification and variation. Then you add more specialist exposure at either end of the core; these more concentrated holdings come with an elevated risk and return profile, but you’ve got the core to fall back on.

A consequence of this approach is that you may end up holding funds where managers are taking different views of the data. But that’s no bad thing – it’s actually a good illustration of where diversification can prove helpful, providing protection and compensation if and when one of the views goes wrong.

As for the question of whether Rogoff is right in his assertion that technology stocks are not hugely overvalued, that really is a question of judgement. He argues that these stocks currently trade on a valuation of 1.3 times the valuation of the rest of the market, compared to 2.2 times in the late 1990s, when a bubble in the sector burst with disastrous results. He also points out that the artificial intelligence phenomenon is so all-encompassing that it will drive many of these technology companies on to even greater successes. The counter-argument is that investors are often told “this time is different”, only to discover that history has a nasty habit of repeating itself.

That, however, is the beauty of investment – or the challenge, depending on how you look at it. Investors have plenty of choice and can pick the managers and funds who resonate with them most strongly. Or, of course, they can use investment trusts such as these vehicles to build diversified portfolios that give them a finger in plenty of different pies