Ian Cowie: my tech bets bouncing back and beating Scottish Mortgage

Our columnist gives the investment case for the tech-focused investment trusts and shares he owns, as they rebound strongly in the first quarter of 2023.

Spring has sprung and technology shares are leading the recovery from a long winter for digital firms which suffered dismal returns in 2022. But spare a thought for what used to be Britain’s biggest investment trust, Scottish Mortgage (LSE:SMT), which seems set to sit out the global tech bounce and has actually slipped lower since the start of January.

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Which trend will your portfolio follow? While the FTSE 100 benchmark of Britain’s biggest shares is up 2.75% year to date and the Standard & Poor’s 500, a broad measure of the American market, has risen by 7% over the same period, New York’s tech-focused Nasdaq Composite has soared by 16%.

Meanwhile, tech-heavy SMT remains 8% lower than it was at the start of the year (as at time of writing on 11 April). That’s tough luck when the £9.1 billion giant’s top 10 underlying holdings include the semiconductor chip-maker ASML (NASDAQ:ASML), the electric car company Tesla (NASDAQ:TSLA) and the online retailer Amazon (NASDAQ:AMZN), all of which have had a strong start to the year, with Tesla shares up more than 70%.

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Fortunately, my investment trust with most exposure to technology seems to be surfing this year’s recovery in share prices more successfully. Polar Capital Technology (LSE:PCT) has rebooted more than 12% higher since the start of 2023.

However, this £2.9 billion fund’s top three underlying holdings are Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and NVIDIA (NASDAQ:NVDA), and these three shares have jumped since January by 21%, 30% and an eye-stretching 93% respectively. Such spectacular short-term returns show that even diversification is a double-edged sword, because it can reduce returns as well as risks.

Fortunately, Apple is also my most valuable direct shareholding and I added Microsoft in January, after I heard about its $10 billion (£8 billion) stake in the artificial intelligence (AI) online robot sensation ChatGPT. If you remain sceptical about the latter and suspect it is all hype, then beware that the billionaire co-founder of MSFT Bill Gates predicts that ChatGPT will be “the biggest thing this decade” and will change the world more fundamentally than his software has done.

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Coming down from the clouds of digital speculation, the technology revolution is also affecting some of my other investment trusts; albeit less obviously. For example, the self-descriptive Worldwide Healthcare (LSE:WWH) includes among its top 10 holdings the robotic-assisted surgery (RAS) $90 billion giant Intuitive Surgical (NASDAQ:ISRG).

Fewer than one in 10 surgical operations worldwide currently involve robotic assistance but regulatory authorities in Canada, Europe and Japan have recently given the green light for greater use of RAS.

This could have global implications for health as well as wealth. The robotic surgery expert Dr. Carla Peron explained: “Our biggest goal is expanding access to care, and robotic systems have the ability to enable more people to receive general surgery overall.

“We know that healthcare systems are in a tough position and the cost of health can be high. But slowly, paying institutions are getting more comfortable with robotic surgery as we publish more evidence of the benefits of the procedure, such as reducing the length of stay.”

Here and now, RAS remains relatively low-profile compared to ChatGPT. Perhaps that's why Intuitive Surgical shares are nearly 2% lower than they began the year, while Worldwide Healthcare is down 4%. From an investment point of view, that could mean there is time to buy into this theme at reasonable prices - provided you believe any recovery has further to go.

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While last year was dismal, with SMT slumping by 33%, this investment trust’s more meaningful medium-term return over five years remains positive at 51%, according to independent statisticians Morningstar. That remains far ahead of the FTSE 100’s relatively feeble 7% over the same period and almost in line with the S&P’s 55% return, but well short of the Nasdaq’s soaraway 70%.

Most encouragingly for believers in the digital revolution, PCT did even better with a total five-year return of 79%, or more than double WWH’s 35%. Both remain far below spectacular performance over the same period of 205% gains from Microsoft and 268% from Apple.

But single shares involve more risk, as well as the potential for greater returns, than diversified investment trust portfolios. Even AI, ChatGPT and RAS - or any other techy acronyms - cannot change the fundamental facts of stock market risks and rewards, come rain or shine.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Microsoft (MSFT), Polar Capital Technology (PCT) and Worldwide Healthcare (WWH) as part of a globally diversified portfolio of investment trusts and other shares.