Allianz Technology Trust: April update 2022

• The trust invests in companies that use innovative technology to gain a competitive advantage in their industry
• The managers have a lot of experience investing in technology and can call upon the vast resources at their disposal at Allianz
• Long-term performance has been strong but more recently the trust has been under pressure

How it fits in a portfolio

Allianz Technology Trust aims to deliver long-term capital growth by investing in technology companies from around the world. The managers favour those that are innovating to gain a competitive advantage in their industry, addressing global trends or improving existing technology. They mainly invest in large and medium-sized technology companies but have the flexibility to invest in higher-risk smaller companies too.

Investing in the trust could help boost long-term growth potential but this is a specialist area so adds risk. We think funds and investment trusts investing in a specific sector, should usually only form a small part of a well-diversified investment portfolio. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to net asset value (NAV).

Manager

The team is co-headed by Walter Price and Huachen Chen, who have worked together for more than 30 years. Price has been a part of the San Francisco based Allianz GI Technology team since 1974 and Chen joined Allianz GI in 1984, having covered a range of technology sectors including semiconductors and electrical equipment.

In July 2022, Mike Seidenberg will take over as lead manager of the trust. He was recruited by Price in 2009 and has been taking on more responsibility in recent years. Seidenberg will continue to receive support from Price and the wider team, including experienced portfolio managers/analysts, Danny Su and Rich Gorman.

At first glance this team may seem small, but they each offer more than a decade of experience and can call upon an additional 10 global sector analysts, nine of whom focus purely on technology companies. The team are based across multiple continents, including the US, Europe and Asia, which helps extend their global reach within the technology sector.

Grassroots Research, a division within Allianz GI, is a resource the managers can also draw upon. It’s a global network of journalists, field investigators and industry contacts that gather additional research and talk to companies and industry experts. Having access to this network helps the team identify new stock ideas and monitor sector trends.

Process

The managers look to identify technology companies they believe have the potential to ride major trends and be successful over the long-term. Favourable traits include high quality management teams, healthy balance sheets and strong barriers to entry.

Companies offering these characteristics can offer opportunities in different market environments and typically fit into three categories:

High growth innovators - emerging or transformative areas of tech, offering higher growth potential but higher risk.

GARP (growth at a reasonable price) - established companies that have potential to grow but aren’t overpriced.

Cyclical growth - companies that are sensitive to economic conditions and could grow as the economy grows.

The trust currently invests over 80% of its assets in US technology companies. The team find a range of opportunities here but also invest in the top five largest US technology companies – Apple, Microsoft, Alphabet, Amazon and Meta Platforms (previously Facebook).

The trust is fairly concentrated in terms of sector and geographic allocations, which increases risk. As a result, the team look to diversify across other countries, including the UK, parts of Europe and some higher risk emerging markets like Korea and Taiwan. They also invest in an array of technology sectors, including consumer goods & services, industrials, financials and healthcare. Although, portfolio diversification does not ensure against loss.

Over the past year, the managers have taken advantage of some market volatility and increased the amount invested in semiconductors to around 30%. They’ve also bolstered other parts of the technology sector including some software companies. On the other hand though, the managers made the decision to sell Chinese giants Alibaba and Tencent following concerns around government intervention and regulatory crackdowns. As of the end of December 2021, the trust has no direct exposure to Chinese companies.

The managers of the trust have the flexibility to use gearing and derivatives which can magnify any gains or losses. Investors should be aware that if used, each increases risk. Although they have this flexibility, to date, the managers have not seen the need to take on the additional risk.

Culture

The trust was formed in December 1995 and was relaunched with a new team at the helm in 2007 by Allianz GI. The board appointed Allianz GI to oversee the trust based on their experience and in-depth expertise of investment trust management. The team has experience across the industry and is committed for the long term.

Environmental, social and governance (ESG) factors have become increasingly prominent in recent years and form an important part of Allianz’s DNA. For the first time, the group have outlined in their annual report how ESG is incorporated within the trust’s investment process. The main area of focus is governance within technology companies, specifically the strength and makeup of the board. They can hold management to account but also help influence and improve their behaviours, which they believe can lead to more sustainable long-term performance.

The managers benefit from having a separate ESG research team too and are less reliant on third party data. This team provides challenge and critique on all portfolio decisions and stock selection ideas.

Cost

The ongoing annual charge over the trust's financial year to 31 December 2021 was 0.69%, compared to 0.80% the previous year. The trust also has a performance fee, but no fee has been earned in 2021. Investors should refer to the latest annual reports and accounts and Key Investor Information for details of the risks and charging structure.

If held in a SIPP or ISA the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share Account.

Performance

Since Price became lead manager in April 2007, the trust has outperformed its global benchmark. Over this period, its Net Asset Value, or NAV, grew 1,271.50% and its share price rose 1,154.99%*. Remember past performance is not a guide to the future. All investments fall and rise in value so you may get back less than you invest.

Following stand-out performance in 2020, 2021 was a more volatile year for the technology sector and demand for some technologies has dropped as economies have started to re-open.

Over the trust’s most recent financial year (to the end of December 2021), its NAV increased by 19.4% and its share price rose by 18.7%. This meant the trust underperformed its global benchmark. Though this is a short timeframe so you should consider this performance in the context of a longer time horizon.

Rapidly increasing inflation and uncertainty around rising interest rates are causing concerns too. Rising supply and labour costs, alongside an increase in borrowing costs are putting pressure on the share prices of some technology companies.

Paycom and Block Inc were some of the trust’s weaker performing investments and were hit hard by the sharp style rotation from growth to value. Okta and CrowdStrike also detracted from performance due to increasing competitor pressures.

The trust’s underweight position in Apple and Microsoft hurt performance as well. The team missed out on some potential gains here but are reluctant to take larger positions in either company. They are strong businesses, with healthy balance sheets but can be vulnerable to swings in sentiment. The managers feel that an overweight position in these companies may not benefit clients in the long run.

There were some companies that performed well in the period though like productivity tool, Asana. Certain companies are looking to automate tasks and Asana can provide them with the tools to do so. As a result, it benefited from a surge in product demand. Tesla and Zscaler were also among the fund’s top performers.

Annual percentage growth

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2022.

FIND OUT MORE ABOUT ALLIANZ TECHNOLOGY TRUST INCLUDING CHARGES

VIEW ALLIANZ TECHNOLOGY TRUST KEY INFORMATION DOCUMENT

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