As several London-listed investment trusts with a global and a technology focus have high exposure to the 'Magnificent Seven' US tech giants, broker Stifel warned that it was wary of a potential bubble and the dramatic potential consequences for these funds.
Scottish Mortgage Investment Trust PLC (LSE:SMT) and JPMorgan Global Growth & Income are the global trusts with the biggest exposure to 'Mag 7' stocks – Google owner Alphabet, Amazon, Apple, Facebook owner Meta Platforms, Microsoft, NVIDIA and Tesla – with over 20% of portfolio net asset value exposure.
In total there are six global and global equity income trusts with at least 9% NAV exposure.
Among specialist tech and North America funds, understandably four trusts have over 15% exposure, of which two are over 34%.
The 'Mag 7' stocks collectively doubled in value last year and have been an important driver of returns for many of the global, tech and US equity trusts, noted Stifel analyst Iain Scouller.
But he said: "We are always wary of the consensus view and potential 'bubbles', and think when the Mag 7 move out of favour, the shift could be dramatic with clear implications for the relative performance of the global trusts."
Wide variance
The portfolio exposures to these seven companies vary widely amongst global and global equity income trusts, with the highest weighting being JPMorgan GG&I's 21% of NAV, and the lowest being Henderson International Income Trust PLC (LSE:HINT), with only a 5% portfolio exposure, and Murray International Trust plc (LSE:MYI) with a big fat zero.
The JPMorgan GG&I trust has indeed seen the strongest NAV growth over the past 52 weeks, up 28%, followed by Alliance Trust PLC (LSE:ATST) on 26% with just over 15% of NAV exposure, and three with 20% performance, namely Monks Investment Trust PLC (LSE:MNKS) with 16% Mag 7 exposure, F&C Investment Trust PLC (LSE:FCIT) 11.5% exposure and Brunner Investment Trust (LSE:BUT) with 7% exposure.
Among specialist tech and US funds, there is of course a high weighting, with Polar Capital Technology Trust PLC (LSE:PCT) having 70% and 39% NAV exposure and Allianz Technology Trust PLC (LSE:ATT) with 90% North America weighting and 34% exposure.
Among US-focused equity trusts JPMorgan American's 28% of NAV is at the top to BlackRock Sustainable American at 2% and North American Income at 0%.
The recent reporting season for many trusts has confirmed that a key determinant of the performance attribution over the year has been the level of exposure to the Magnificent 7 US companies, Scouller said, which has consequently risen sharply for many.
Scottish Mortgage was an outlier, with a high 20% in the Mag 7, but an NAV rise of only 12.1%.
"Whilst we are awaiting Scottish Mortgage's report & accounts to 31/03/24, we suspect its returns have been 'held-back' or 'dragged-down' by flatter returns from its unlisted portfolio, which has accounted for almost c.30% of its portfolio over the past year," the analyst noted.