The Investment Trusts Most Exposed to Big Tech

Halloween may have been this Monday, but the real horror show for tech investors was last week when the former darlings of the stock market took an absolute hammering. The spectre at the feast was Meta (NAS: META), whose shares lost a quarter of their value on Thursday after announcing poor earnings, with net income down 52% in the third quarter.

Amazon (NAS: AMZN) was down about four percent the same day before it released a weak sales forecast and warned that its operating profits could be zero in the final quarter as it deals with inflation and increasing competition. This was enough to send its shares spiralling 14% in after hours trading.

Another notable casualty was Alphabet (NAS: GOOGL), where sales growth slowed sharply during the quarter as advertisers cut spending ahead of an economic slowdown, while Microsoft (NAS: MSFT) warned that its cloud computing business was slowing more than expected.

There are several investment trusts with significant exposure to these areas, particularly Amazon, Microsoft, Apple and Alphabet, although holdings in Meta and Twitter – another big mover after the takeover by Elon Musk – are more limited. The broker Numis has just brought out a report highlighting those most at risk.

Don’t have a Scooby

One of the most exposed trusts is Manchester and London (LON: MNL), which according to Numis has 32% of its net assets invested in Microsoft, with a further 24% in Alphabet and 10% in Amazon. As you would expect it has taking a real hammering with the shares down around 40% in the last year and they are now trading at a 20% discount to NAV.

Next on the list is Menhaden Resource Efficiency (LON: MHN) that focuses on companies benefitting from the efficient use of energy and resources. It has a 26% exposure to Alphabet, as well as 11% in Microsoft, which it says aims to be carbon negative and remove all carbon it has emitted since founding by 2050. MHN shares are down significantly in the year and are trading at a near 30% discount.

Two of the more obvious casualties are Allianz Technology (LON: ATT) and Polar Capital Technology (LON: PCT), which both have significant exposures to these mega-caps, even though they are typically underweight compared to the benchmark. Allianz follows a high conviction strategy, but with more of a small and mid-cap bias, so it has the lower weighting of the two, whereas Polar has a diversified approach that is benchmark aware.

Nowhere to hide

The problem with sector specific trusts like ATT and PCT is that when that area is taking a battering there is nowhere to hide. Over the last 12 months their shares are down 28% and 24|% respectively and are currently available on discounts of eight and seven percent.

It is situations like these where having a more flexible mandate and managers with the skill to take advantage really pays off. A good example is Scottish Mortgage (LON: SMT) that used to have a huge exposure to US tech platforms, but that moved on some time ago in the search for the next generation of businesses benefitting from secular growth trends.

SMT now only has a modest weighting in the US mega-caps with its focus being on companies that benefit the digitisation of the economy; the intersection of information technology and biology; and energy transition. These are still typically long duration growth stocks though and the trust has suffered as interest rates have risen.