Numis: Trusts with the biggest US mega tech exposure

Numis Securities reveals which investment companies have the biggest holdings in major US technology stocks after poorly-received quarterly updates wiped $800bn off the sector.

Numis Securities has published analysis of the investment companies with the biggest holdings in the major US technology stocks after a series of poorly-received quarterly updates this week saw shares tumble, wiping off around $800bn from the sector. 

The broker says closed-end funds’ biggest exposures centre around Amazon, Microsoft, Alphabet and Apple, rather than Meta and Twitter.

That’s some relief for investment trust investors as Facebook-owner Meta plunged 25% yesterday after analysts questioned the wisdom of founder Mark Zuckerberg’s (pictured) ‘metaverse’ strategy following a 52% collapse in its third quarter revenues.

Meanwhile, Twitter stock was suspended as Tesla boss Elon Musk completed his $44bn takeover of the social media platform by firing its senior management. The risk of Musk taking his eye off Tesla is a worry for Baillie Gifford investors with the fund manager’s Scottish Mortgage (SMT ), Baillie Gifford US Growth (USA ) and Keystone Positive Change (KPC ) all backing the electric vehicle leader.

Amazon, a top holding in Manchester & London (MNL ) and a smaller position in trusts such as Polar Capital Technology (PCT ) and JPMorgan American (JAM ), dropped over 14% yesterday in after-hours trading after the e-commerce giant warned fourth quarter operating profits could be zero as it struggles with cost-inflation and increasing competition.

Microsoft, a surprise top 10 holding in Menhaden Resource Efficiency (MHN ), slid 7% on Wednesday as first quarter revenues from its cloud business missed forecasts with overall profits falling 14%. 

Alphabet, the Google owner that features in many portfolios, including Allianz Technology (ATT ), slid 9% on Wednesday, its worst one-day decline since the March 2020 pandemic crash, after reporting a sharp slowdown in its core search advertising business. 

Apple, the iPhone maker that is most prominent in F&C (FCIT ) and Canadian General Investments (CGI ), was more resilient as third quarter revenues beat forecasts with an 8% year-on-year rise to $90.1bn. However, it blunted the good news with caution around the ‘significant’ currency and supply challenges it was facing in the last three months of the year.

Heavy loads

Numis’s head of investment companies research, Ewan Lovett-Turner, said Manchester & London (MNL ) has by the far biggest exposure to US big tech, with two-thirds of net assets invested in its top three positions of Microsoft (32%), Alphabet (24%) and Amazon (10%).

Shares in the £182m global portfolio run by Mark Sheppard of M&L Capital Management have fallen 38% this year in the growth stock crash and stand on a 22% discount below net asset value (NAV). Long-term performance has suffered too with shareholder returns of 68% over the past decade trailing the 198% total return from the MSCI All Countries World index. 

Lovett-Turner said Scottish Mortgage (SMT ) was once a ‘poster child’ for US technology companies, but it has been five years since Amazon, Facebook and Alphabet featured in the top 10 of the £10.5bn Baillie Gifford flagship fund. Lead fund manager Tom Slater has tilted the portfolio towards China and other growth themes such as healthcare and the energy transition. 

Its shares have plunged 44% this year to stand on a 13% discount to NAV, though long-term returns of 482% over 10 years remain impressive.

Inevitably technology trusts from Allianz and Polar Capital have big exposures too. However, although they have around 20% and 30%, respectively, in these names they are ‘underweight’ compared with the US stock market, where Apple and Microsoft account for around a fifth of the S&P 500 index.

Polar Capital fund manager Ben Rogoff’s 10% underweight to these two giants reflects his belief that they are great businesses but also his wariness at having too much in any single holding, in contrast to MNL’s Sheppard.

Allianz Technology, where Mike Seidenberg recently took over after the retirement of Walter Price, is happy to run a high conviction approach but prefers to seek growth opportunities through smaller ‘mid-cap’ stocks rather than the mega caps that have been buffeted this week. 

Neither has been immune to the growth crash, however, with Allianz Technology and Polar Capital Tech down 35% and 30% this year. The shares stand 8.5% and 7.4% below their asset values although both discounts are narrower than their one-year averages. This could be an attractive level if the trusts return to their stunning long-term performance, although this is open to question as the era of low interest rates that powered tech stocks in the past decade looks to have decisively ended. 

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