Allianz Technology Trust 31 October 2018
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Allianz Technology Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Around a year after it developed a specific “Brexit” page, the FT newspaper app now has a dedicated Technology section. Either this marks the very top of the market (we think not), or it is a rather late acknowledgement from the FT that the technology sector impinges ever more in every aspect of our lives and at the same time has delivered exceptionally strong returns for investors in these companies.
For investors wanting exposure to this area, Allianz Technology Trust (ATT) represents a very actively managed specialist investment trust, managed by one of the most experienced technology investment teams in the world, which has delivered excellent returns over the years.
Despite some clouds continuing to hang over the technology sector’s largest names, the portfolio has witnessed a significant re-shaping since September 2017. It has shifted capital away from mega caps to mid caps, and has continued to increase the number of stocks held. The ATT team now has around 50% of the portfolio exposed to companies expected to benefit from “the cloud”, and has slashed exposure to China and semi-conductors.
This represents a marked change in risk appetite and the re-positioned portfolio now offers, according to Allianz Global Investors' (AllianzGI’s) estimates, earnings growth for the next 12 months of 20%+, nearly twice that of the benchmark. Recognising that interest rates and discount rates are rising, manager Walter Price is mindful of valuations, and whilst the portfolio is expensive on a forward P/E of 33x, the realised PEG (or PE to Growth) ratio will be lower than the benchmark in the year ahead.
Walter and his team in San Francisco have developed a long-term track record stretching back several decades. The team took over management of ATT over ten years ago, over which period the trust has generated NAV total returns (to 30th Sept) of 593%, outperforming the benchmark by an exceptional 202%. Over one year ATT has posted a strong relative performance against both the wider market and the DJ World Technology Index, up 10.1% in the year to 28th October 2018, against the benchmark return of 4.3%. ATT has total assets of £463m.
There are relatively few specialist technology funds in the UK trust and OEIC universe, but ATT has outperformed the vast majority of them. We believe this is thanks to the team’s flexible stock picking approach and focus on seeking to identify areas of 'innovative disruption', and invest in what they see as the next 'mega cap' businesses. However, one can’t discount the advantage it has of being based in the midst of 'the action' in San Francisco.
Historically, ATT has traded on a wider discount than its closest listed peer, PCT. However, for a while now this situation has reversed and the trust trades on a small premium to NAV (of 2.9% at 30 Oct 18) as compared to PCT’s discount of 4.9% - in our view, reflecting the stronger performance and active stock picking employed by the AllianzGI team.
The team’s active investment process, flexibility and high-conviction approach has delivered considerable value over the last ten years, with the portfolio now tilted towards the 'high growth' beneficiaries of the continued move towards the cloud.
|Active stock picking in a specialist area
|High P/E relative to market could offer little protection in prolonged market drawdown
|Team has delivered strong historic growth
|Premium to NAV could suffer if sentiment falls
|Simple, flexible mandate
|The trust has a performance fee