Polar Capital Technology (PCT), the best performing investment trust over five years, took some profits last month and adopted a more defensive posture as a broadening rally in artificial intelligence (AI) stocks pushed its shares 18% higher and fund managers Ben Rogoff and Alastair Unwin made room for SpaceX in their portfolio. 

Rogoff told Citywire last week that PCT had subscribed for shares in SpaceX in this month’s record $1.3trn initial public offer (IPO) but did not say how many. 

He defended the loss-making company from criticism it was too highly valued at 92 times sales, comparing the scepticism that greeted Alphabet (GOOGL) when it floated in 2004 before going on to deliver a 13,480% return for shareholders, including PCT. 

Rogoff indicated that he and Unwin, who have adopted an “AI maximalist” embrace of the revolutionary technology, were preparing to buy chatbot developers Anthropic and OpenAI when they list later this year. 

‘A lot of people are looking at those big IPO announcements and worrying about them, whereas we’re running towards them,’ Rogoff said. ‘These are the assets that we’ve wanted to get our hands on for a long time,” he added. 

Eyes on Anthropic and OpenAI

In their latest monthly commentary, the fund managers said successful IPOs by the currently unquoted Anthropic and OpenAI “should help underpin confidence in both the scale and duration of AI capex,” saying “we have been closely following and researching these companies for quite some time”. 

This includes SpaceX (SPCX) whose shares traded at $167.50 on Nasdaq this afternoon, around 24% up on their $135 listing price, valuing the group at $2.2trn, though they have slipped from an early peak of $201.80.

Both Anthropic and OpenAI have achieved extraordinary rates of growth as private companies with public market investors like PCT hoping they can continue this after flotation. Anthropic fetched a $965bn valuation in a $65bn fund raising last month reflecting a surge in annualised recurring revenues from $9bn to $46bn this year. OpenAI achieved an $852bn valuation in March when it raised $122bn from investors.

Google processes “quadrillions” of AI tokens

Rogoff and Unwin retain high conviction in the three-and-a-half year AI story with business adoption only starting in earnest this year, they say, with recent first quarter results demonstrating the sector’s strong fundamentals. 

As evidence of the acceleration in growth, the duo highlighted Google saying it had seen an exponential rise in the number of tokens it processed. Tokens, the basic unit of text in user queries that AI models like its Gemini app handle, had hit 3.2 quadrillion a month, up from 480trn a year ago and 9.7trn two years ago. A quadrillion is a thousand trillion or 1 followed by 15 zeros. 

Despite this “step change”, shares in two of PCT’s top 10 holdings had been weak: top 8.1% holding Nvidia hit by recent rumours of product delays and a 4.4% number six position in Microsoft continuing to underperform on concern over its enormous AI spending. 

Heightened risk

Amid signs of profit taking by investors after the “exceptionally strong recent run”, the PCT managers had reduced the trust’s sensitivity to market movements, or beta. They had done this with some profit taking of their own, and by increasing their holding of defensive Nasdaq put options. These give them the right to sell the tech index at a higher level should it fall. 

“This reflects heightened macro/geopolitical risk (Middle East; higher risk-free rates) as well as possible market digestion given the magnitude of expected near-term equity issuance,” they said in reference to the SpaceX IPO.

However, they were satisfied the 102% total return in the US stock market since OpenAI launched ChatGPT in November 2022 was based on more than just rising investor optimism about AI. Earnings per share forecasts from S&P 500 companies had risen by more than half from $224 to $340 since then. “As such, approximately two-thirds of the S&P’s rally since November 2022 can be explained by earnings growth revisions,” they said.

Top trust over five years

PCT managers’ focus on AI has paid off handsomely for its shareholders. By the end of last week PCT shares had rallied 112% in the past year, making them the third biggest riser behind Seraphim Space (SSIT) and Baker Steel Resources (BSRT), which returned 173% and 134% respectively.

Over five years, however, PCT is the best performing of 233 London-listed funds tracked by broker Winterflood with a 215% total return that beats the 167% growth from its Dow Jones Global Technology benchmark index. 

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