Kepler Trust Intelligence
Updated 15 Dec 2021
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This is a non-independent marketing communication commissioned by Allianz Global Investors. 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.

Since the pandemic began in early 2020, it’s brought with it a myriad of peculiar consequences. Omnipresent surgical masks, an acute awareness of supply chain bottlenecks, and a consistent stream of video conferencing appointments are all things that would’ve seemed a little odd prior to Covid-19 spreading across the world.

Another phenomenon has been the so-called ‘great resignation’. As fear of the pandemic began to recede following vaccine rollouts in the first half of 2021, huge numbers of workers started to switch jobs.

The US has been the most prominent example of this, with an average of 4m employees leaving their jobs every month from April through to September. Similar scenarios have played out across much of the world, in both developed and emerging markets.

Not just Covid

An obvious factor behind this trend is that there are more jobs on the market. In the UK, new vacancies from August to October were at their highest level since record keeping began in 2001. The same was true in the US, where the Department of Labor reported a record 10.1m vacancies in August.

Confusingly, this doesn’t seem to be solely the consequence of a Covid economic bounce back. For instance, almost the same proportion of people in the UK are in work as they were prior to the pandemic’s start but there are still a huge number of jobs to be filled.

What we may be seeing is the effect of an increasing shortage of labour, particularly in higher income countries. This was already underway prior to the pandemic with ageing populations and lower birth rates across much of the world meaning we are projected to see a 43m shortfall of workers by 2028.

Less workers, more investment

It’s hard to predict exactly what the consequences of this shortage will be but it’s a theme the Allianz Technology Trust (ATT) team is paying close attention to. As its name suggests, the trust invests across the technology sector, with about half of its holdings in semiconductor, software, and internet services companies.

These are the sorts of businesses which could stand to benefit from a shortage of labour given that, over the past century, periods with shortfalls of workers have tended to result in higher spending on technology.

The last shortage, which lasted from 1991 to 1999, saw the proportion of US GDP spent on technology rise from 2.9% to 4.6% - about the same size as the increase over the prior 30 years. And  ATT’s managers believe the current struggle to find workers may produce similar results.

“In the longer-term, we believe [the current labour shortage] may help create a golden age for technology,” lead manager Walter Price told shareholders in November. “Technology can be used to pick up tedious and repetitive tasks for which it is increasingly difficult to recruit. This might include anything from manual processing of insurance claims to autonomous driving for trucks or cars.”

Selling picks in the tech gold rush

It would be easy to assume these automation processes will be driven largely by software businesses. And indeed, Microsoft and Google-owner Alphabet, both of which are among ATT’s largest holdings, have already launched tools that can automate various business processes.

But it’s arguably the second biggest sector allocation in the ATT portfolio – semiconductors – that stands to benefit most from any increase in automation and technology spending. Almost any device that will play some role in replacing human input requires a semiconductor to function, whether that be a robot in a car factory or a laptop used by an office worker.

That opens up a lot of opportunity but it also means ATT doesn’t have to make bets on which companies will succeed and which won’t. Semiconductor businesses are a bit like pick-axe sellers in a 21st century gold rush. There is huge demand for their products, meaning shareholders can benefit from increased sales, but they don’t necessarily have to worry about the success of the companies buying them.

The industry also has a much wider moat around it than others do, meaning the dominant players, including firms in the ATT portfolio like Micron Technology and TSMC, aren’t likely to see their position in the market upset easily.

Catering to worker demands

Of course, automation isn’t likely to result in a workforce of AI programs and factory robots. Workers are likely, however, to ask for more from employers, particularly when it comes to remote working.

This is a trend that looks set to last beyond the pandemic, with major corporations, including Apple and PwC, already announcing they’ll be allowing employees to work from home once the pandemic is over.

ATT has allocated funds to firms it believes are likely to benefit from this brand of flexible working. The early signs are positive here, with Asana, arguably the holding most likely to benefit from the trend, acting as one of its top relative contributors throughout 2021.

“Managers need to find a new way to monitor their employees now they can’t peer over their shoulders,” said Price. “They will increasingly need to turn to workflow tools, such as Asana or Basecamp. When employees are spread more widely, technology tools to monitor deadlines and work are a necessity to make sure tasks are done and organised. Collaboration tools become vitally important.”

The winds are still in the tech sails

Price’s team have delivered total NAV total returns of 322.5% over the past five years to 13 December 2021, far outstripping the 234.4% produced by the trust’s benchmark, the Dow Jones Global Technology Index.

Such positive returns often make investors feel that the party can’t continue and it’s time to look elsewhere if they want to see returns. This doesn’t have to be the case and the prospect of a global labour shortage seems poised to provide tailwinds to a sector that already has plenty working in its favour.

A shortfall of workers may not sound like the most positive macroeconomic news for investors but ATT’s focus on the problem may enable investors to make the most of a bad situation.

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