SKANDIA GLOBAL FUNDS PLC - Fidelity Investments

Skandia Global Funds plc
Interim Report and Unaudited Financial Statements for the period ended 30 June 2012
SKANDIA TECHNOLOGY FUND
INVESTMENT ADVISER’S REPORT FOR THE PERIOD ENDED 30 June 2012
Skandia Technology Fund – Janus Capital International Limited
Below is a report from the Investment Adviser of the Skandia Technology Fund for the first six months of 2012.
The Skandia Technology Fund was launched on 21 April 2006 with a starting Net Asset Value per share of USD 10.00.
Investment Adviser’s Commentary
The Skandia Technology Fund slightly underperformed its benchmark, MSCI World Information Technology (Net Return),
for the first half of 2012. The Fund recorded +8.04%, while the benchmark index had a return of +10.31% over the period.*
The Fund performed in line with its benchmark during the first quarter. The Fund’s holdings in internet software/services
and in IT consulting (as well as an underweight position in this sector) contributed the most to relative performance. On an
absolute basis, strong performance in the largest holdings, namely Microsoft, Apple and eBay, were key to the Fund’s
returns. Apple benefited from a strong earnings report, driven by significant iPhone and iPad sales. Apple also initiated its
first dividend and share repurchase programme during the period. The company has been the beneficiary of incremental
sales opportunities over the past few years from new regions (China), phone service carriers and products(iPad). The
investment adviser thinks it continues to have strong opportunities as its products reach new countries, and lower price
points draw new customers. Apple continues to implement its business plan extremely well, and its stocks remain
reasonably valued. Microsoft also reported better-than-expected earnings, although revenue growth came in below
estimates. The investment adviser believes Microsoft will benefit from its Windows 8 launch later this year, a strong shift
to multiyear agreements and services (now the majority of the enterprise’s revenues) and significant traction in key lock-in
products like System Center. Windows 8 has the potential to be a strong competitor on desktops, laptops, tablets, and smart
phones, and Microsoft’s XBOX platform is gaining share and expanding product offerings in the living room.
Within Internet software/services, online marketplace operator eBay also recorded double-digit gains. Similarly to Apple,
eBay appeared to continue benefiting from a strong earnings report when it raised its three-year forecast. The company’s
online payment system, PayPal, is also receiving valuation upgrades from market analysts based on its new digital wallet
service, which is being implemented much faster than anticipated. The investment adviser continues to feel the company is
innovating both its online payment service PayPal and marketplace businesses beyond what is priced into the stock. In
particular, the investment adviser believes eBay’s open platform for commerce and payments is best positioned to benefit
from accelerating multi-channel commerce in which increasingly online will be used to generate offline in-store demand.
Relative detractors included an underweight in computer hardware and holdings in application software. Within application
software and for the fund overall, RealPage was the largest detractor. The provider of software and related services to the
residential rental market reported an in-line quarter, although with some deterioration of underlying trends.
The investment adviser considers RealPage to have the most comprehensive suite of products in its market with several
proprietary databases that appear likely to compound value over time for its customers through rental effectiveness and
reduced costs. Vocus, a software provider for public relations management, also weighed on performance. The stock
declined significantly after the company agreed to buy an email marketing company. Since the investment adviser felt the
acquisition represented a significant shift from its core business the position was closed. In addition, solar module
component maker STR Holdings traded lower after reporting lower-than-expected results. The timing of the solar market
recovery will be much slower than the investment adviser anticipated. The investment adviser is therefore less optimistic
about when STR’s customers will begin making substantial orders again; therefore, decided to sell the position.
The Fund trailed its benchmark during the second quarter. Detractors included holdings in semiconductors, especially
Atmel and ON Semiconductor. Atmel traded lower due to macro concerns and a shallower than expected recovery for the
industry. ON Semiconductor also declined after reporting in-line results, but the investment adviser continues to believe
this large-scale provider of low-cost analogue and other semiconductor chips has a business-model advantage over its
competitors.
Elsewhere, social game maker Zynga was hurt by the disappointing Facebook IPO, which contributed to a negative
environment for social media stocks in general. Insider selling following a lock-up period on Zynga’s Initial Public
Offering in December also weighed on the shares. Storage providers EMC and NetApp were hit by a slowing enterprise
technology spending environment driven by weakness in financial services, Europe and the US government.
On a more positive note, holdings in internet software and services, led by eBay, were the largest contributors to the Fund’s
relative performance. eBay reported better-than-expected results in its latest quarter, led by strong growth of its electronic
payment platform, PayPal, and raised guidance.
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