Polar Capital Technology Trust (PCT ) has pared back long-held positions in US mega-cap tech giants, including Alphabet and Apple, as managers Ben Rogoff and Ali Unwin question whether the Magnificent Seven can maintain their dominance in the age of artificial intelligence (AI).

In annual results to 30 April, the £4.3bn global tech fund said sentiment toward the mega-caps was starting to shift, pointing to China’s DeepSeek large language AI model and investor unease around ballooning capex as early signs of disruption to the AI leadership narrative.

‘There may be some early evidence of AI disruption beginning to challenge the investment narratives at certain mega-caps,’ the managers said.

They added that the negative reception to sharply higher hyperscale spending at Alphabet, Amazon and Microsoft may indicate ‘a new phase where these companies become less effective AI conduits’.

Rogoff and Unwin stressed they remain willing to exit index heavyweights altogether if concerns mount over growth or AI positioning.

‘We remain unafraid and prepared to materially underweight or exit large index constituents should we become concerned about their growth or return prospects,’ they said.

While PCT has a long-standing structural underweight to mega-caps — a stance that has hit returns — the managers continue to back smaller, specialist players they believe are better aligned with emerging AI and enterprise software themes.

AI rally fades, large-cap drag grows

The trust reported a net asset value (NAV) total return of 3.1% in the year to end-April, trailing the 5.1% gain from the Dow Jones Global Technology Index. Shareholder returns were down 1.2% as the discount widened from 7.4% to 11.3%, despite a buyback of 36.2m shares.

Performance closely tracked the AI narrative. A strong first half, driven by infrastructure plays, was reversed after China’s DeepSeek model triggered a market reassessment of US dominance, compounded by renewed tariff fears and tech protectionism.

Nasdaq put options helped soften the quarter one drawdown for the trust. 

Large-cap outperformance remained a headwind, with the Russell 1000 Technology index up 5.9% while the small-cap Russell 2000 Technology index fell 12.3% in sterling terms. The trust’s diversified positioning and underweight to index giants like Microsoft and Meta made it harder to keep pace.

Winners over the year included GE Vernova, Spotify, Axon Enterprise and Robinhood, while detractors included Micron, MongoDB, Marvell and First Solar. 

Currency was another headwind, with a 6.7% decline in the US dollar reducing absolute returns on the trust’s largely dollar-denominated holdings.

Over five years, the trust’s share price has returned 74.1%, roughly in line with the Global Technology sector average of 75.7%, according to the AIC.