HgCapital Trust: Is Britain's overlooked tech fund worth buying?

AI fears have weighed on HgCapital Trust, even as its specialist software holdings continue to perform well. Is now the time to invest?

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HgCapital Trust (LSE: HGT) ranks as Britain's second-largest listed technology company. Given how little exposure the UK has to the tech sector, you might expect fund managers to show strong interest in its 2 billion fund. They have not. Few UK specialist funds hold any exposure, while the shares trade at a 26% discount to net asset value (NAV).

HgCapital Trust has little exposure because it is itself an investment trust. Professional managers are reluctant to buy a fund run by another manager, even when that fund is a private-equity vehicle owning companies they could not access directly. The discount appeared more recently; in late 2024, the shares traded at a small premium. It reflects broader concern about how AI may affect software companies.

HgCapital Trust's NAV can be exposed

HgCapital Trust's NAV comes from an independent valuation based on comparable listed companies. Direct matches are uncommon, so the comparison often extends to businesses that only look similar on the surface or operate in a different part of the market. That leaves the NAV exposed to sentiment surrounding companies that compete with the trust's holdings. The sharp fall in software shares caused by AI fears showed investors how quickly that sentiment could affect the valuation.

At the end of 2024, the valuation exceeded 26 times. That figure - and the sector average behind it - may have been excessive even without AI's long-term threat. HgCapital Trust now trades at 393p a share, putting its look-through valuation at 17 times EV/Ebitda, or 14 times based on this year's figures.

Visma's delayed listing weighs on HgCapital Trust's portfolio

Visma, the portfolio's largest holding at 12%, will not list as soon as expected. That is the setback. Elsewhere, HgCapital Trust has continued to realise investments at sizeable premiums while adding several new positions. During 2026, it completed three full exits and one partial exit, and received proceeds from four refinancing transactions. The full exits averaged a 31% uplift on book value, slightly ahead of the ten-year average; the figures offer no evidence of inflated valuations. The trust also announced three new investments and increased its stake in two others.

HgCapital Trust has committed investments worth 85% of NAV, a sizeable amount, according to Iain Scouller at broker Canaccord. It can still decline any of those commitments if it chooses. At mid-year, HGT had 300 million in unused debt facilities, though further borrowing sits within the companies it owns and the Hg-managed funds used for its investments. The balance sheet appears solid, but the wider structure carries debt too. That need not be a concern; HGT should be ready to act when valuations fall.

On AI-related risks, HgCapital Trust says its portfolio ranks among the largest software environments using AI at scale and driving change through it. Jim Strang, the trust's chair, says investors have started to draw a clearer line between companies likely to gain from AI and those more vulnerable to disruption.

Rather than being harmed by AI, HgCapital Trust believes it stands to gain, which makes its shares look highly attractive. That explains why the managers plan to raise their stake from 6% to 15%. Other investors should follow their example.