The technology sector, with artificial intelligence (AI) at its core, continues to be a major driver of global markets, attracting significant investor interest. While information technology officially accounts for 32% of the MSCI ACWI Index, a broader definition of 'tech' companies, including giants like Alphabet and Amazon often categorised elsewhere, suggests an even greater market influence. This concentration, however, presents risks, particularly for those heavily invested in passive tracker funds, which can lead to over-exposure and increased volatility during market downturns.
Amidst the competitive landscape of technological innovation, identifying winning investments can be challenging. Actively managed investment trusts are emerging as a potentially attractive option for UK investors looking to navigate this complex sector. These closed-ended vehicles offer several structural advantages, as highlighted by Alex Trett, investment trust research analyst at Winterflood Securities. Trett notes that their permanent capital allows managers to adopt a genuinely long-term approach, supporting investments in private companies and providing the patience needed for investment theses to mature. This structure can also facilitate exposure to smaller-cap technology businesses, where liquidity can be a constraint for other investment vehicles, and enables managers to build concentrated, high-conviction portfolios.
Among the prominent options for UK investors is Scottish Mortgage (LON:SMT), which, despite its broad mandate to own "the world's most exceptional public and private growth companies," has a significant lean towards technology. As of 30 June, its portfolio included substantial holdings in SpaceX (over 25%), Taiwan Semiconductor (6.4%), Nvidia (5.0%), and ByteDance (4.2%). Its ability to hold private companies like ByteDance and, until recently, SpaceX, is a key appeal, tapping into future growth potential. Trett expects the significant SpaceX weighting to be adjusted once lock-up periods following its IPO permit.
Another notable trust is Polar Capital Technology (LON:PCT), which strategically focuses on the hardware and infrastructure underpinning AI development. Its managers prioritise areas with greater earnings visibility, with semiconductors representing the largest exposure at 44% of the portfolio, followed by equipment, components, and storage, including companies like Advanced Micro Devices and LAM Research. This targeted approach aims to capture growth from the foundational elements of the AI boom.
Allianz Technology Trust (LON:ATT) offers a distinctive proposition with its management team based in San Francisco, providing direct access to many of its portfolio companies. Approximately 90% of its allocation, as of 30 June, is in North America, offering broad exposure across the technology and AI ecosystem. This geographical proximity to the heart of global tech innovation is seen as a significant advantage by its managers.