Allianz Technology Trust 18 August 2023

Lead portfolio manager Mike Seidenberg’s goal with Allianz Technology Trust (ATT) is to capture the many secular themes in the technology sector that have long-term high growth potential. He believes that technology is a crucial sector that will account for an increasing portion of the global economy but is much more diversified than often appreciated. He aims to identify the successful themes within the sector and then invest in the companies benefitting most from these through a combination of bottom-up stock selection and a top-down macro-overview, aided by his experienced team (see Portfolio).

The top-down view has led to artificial intelligence (AI) becoming a key allocation in the portfolio, which has combined with the stock selection to lead to an overweight position in Nvidia. This has been a big contributor to Performance this year both in absolute terms as well as relative to ATT’s direct peer.

The technology sector had a difficult 2022 due to rising interest rates which were needed to tackle higher inflation. Mike believes that this headwind is temporary though, and the secular drivers behind a number of themes in the tech sector will persist. So far in 2023, this has come about through strong performance of the mega-cap names. Mike argues this rally needs to broaden out to be sustained which would benefit the mid-cap bias of the trust. However, the Discount on the shares has widened to over one standard deviation wider than the five-year average, largely as a result of negative sentiment towards the sector, which may be seen as an opportunity for long-term investors.

The technology sector has been on a journey in the past few years. The pandemic boosted the whole sector, but higher interest rates have become a significant headwind, which has led to volatility. We believe technology will continue to be an ever-present in people’s lives and that it benefits from strong structural growth drivers. While most investors will have exposure to the mega caps through their US or global holdings, we think a specialist portfolio which can allocate to lesser-known small and mid-caps is highly attractive, given the magnitude of the opportunity.

We believe ATT offers a number of advantages over other ways to access the technology sector. The management team’s bottom-up stock selection has proven itself in 2023 by identifying Nvidia as a winner and benefitting from that (see Performance). Meanwhile, the mid-cap bias means that the team can identify smaller companies with the potential for a longer runway of growth that an investment in the index would miss out on. Finally, the thematic overlay means that the team can not only identify the best subsectors, but also avoid the losers, something that is particularly prevalent in the ‘winner takes all’ tech sector (see Portfolio).

Despite this, the trust is trading at a wide Discount versus its own history. The board has been active in trying to manage this through buybacks which we believe should provide investors with some reassurance. Additionally, the ability to invest in a portfolio of companies that have historically exhibited above average growth at a significant discount to their current value may prove attractive to long-term investors.