Apple is a top-10 holding of 112 funds in the IMA universe – not only technology funds but US index trackers, active funds and global equity funds.
However Evans (pictured), says the company is facing a tough period over the coming years and has sold down his position to just 1.5 per cent, which compares to the 12 per cent on the index.
He commented: “Apple is becoming a more difficult company and it is acting as a headwind for sentiment around the sector and is dragging the benchmark down – it is 12 per cent of our benchmark [the Dow Jones World Technology Index].” “If you strip Apple out, the sector has done better and it’s a distraction from the underlying technology story.”
“The issue is that smartphone penetration is 35 per cent globally and higher in the developed world.”
“Apple’s user base is those who are willing to spend $600 on a phone and is largely saturated, which is why its new products are so important.”
“It’s in a very competitive market with Google and Amazon who will sell at zero margins, Google to drive search traffic and Amazon to sell content.”
“That said, it does have an exceptionally strong balance sheet and it is trading as cheap as it ever has on an earnings basis – 10 times this year’s earnings.”
“But we have more compelling ideas elsewhere. We are at that point in the S-curve where growth slows and competition increases.”
The manager says that he much prefers Facebook, despite its high valuation and he fact that a disastrous IPO last year that saw it lose half its value in weeks.
“I think the perception of Facebook is quite negative because people are worried about its ability to monetise mobile and the fear is by pushing adverts through the news feed on mobiles they will negatively impact user engagement,” he said.
“That was my fear initially too, and we only took a small position in the IPO, but we have built up a position since then.”
“We believe they will succeed in monetising the news feed and that is not very widely appreciated.”
“Part of it comes down to talking to advertisers and part of it is just personal experience.”
“Those people who talk negatively about adverts do so because Facebook doesn’t have enough information about them.”
“If you have liked enough things then the adverts are well-targeted and in my experience it has improved my news fed because I get some interesting extra content through it.”
“I have seen the news feeds of people who haven’t provided information and the advertising can be random.”
“As Facebook gets better at targeting and users provide more information it won’t impact engagement much at all.”
Evans says that Facebook isn’t cheap at 32 times earnings, and he isn’t buying the stock on valuation grounds.
“However, we expect earnings estimates will prove to be too low as they start to monetise mobile advertising better via the news feed,” he said.
“We are not banking on it happening this quarter but we believe over the next several quarters estimates will tick up.”
Polar Capital Global Tech is a $436.5m fund domiciled in Ireland; Evans works with FE Alpha Manager Ben Rogoff on the portfolio but takes the lead role. Rogoff is the lead manager on the closed-ended Polar Capital Technology Trust.
Data from FE Analytics shows that the fund has made 68.35 per cent since launch in September 2009, while the IMA Technology & Telecoms sector has made 65.85 per cent.
Performance of fund versus sector since September 2009
Source: FE Analytics
The fund has a more benchmark-agnostic approach than the investment trust, Evans says, explaining that it has a more institutional investor base which is happier with a more conviction-based approach than the trust.
Data from FE Analytics suggests that the closed-ended fund has done better over the longer-run, returning 41.33 per cent over three years as the fund has made 27.09 per cent.
Evans says that being away from the benchmark should pay off in the future, however, thanks to the changing nature of the technology sector.
Corporate IT budgets are likely to be lower in the foreseeable future, he says, meaning that investors need to look to new ideas to make money.
This means that specialist funds that are less benchmark-aware should prosper.
“You have to understand where the disruption is coming from. The traditional definition of technology doesn’t capture a lot of that growth.”
“It could be dangerous for generalists using value as a guide for investing in the sector. Large stocks such as IBM have been dependent on IT budget growth.”
Evans says that LinkedIn is another company which is under-appreciated by the market.
“It’s a smaller company – $18.5bn compared to Google which is $270bn and Facebook which is $60bn – and has a smaller user base.”
“But the user base is more attractive to advertisers. They are only starting to introduce advertisers onto the news feed.”
“The mis-conception is it’s a site for job-seekers, employers and recruiters, which is where they derive the majority of their revenue.”
“Most people don’t even know you can follow posts from other people on LinkedIn, letting Linked In push content to you; it’s very useful.”
Polar Capital Global Tech has a minimum initial investment of £1,000 and ongoing charges of 1.74 per cent.