Allianz Technology Trust 14 July 2021

Allianz Technology Trust (ATT) offers investors a specialist, bottom-up investment approach to the global technology sector, with the sole objective of total return maximisation. ATT is led by an experienced four-strong team, with the lead managers Walter Price and Huachen Chen having been working together for over 30 years.

The team often follow a thematic approach to their stock selection, believing their holdings to be the ‘winners’ of the emerging trends within technology by (for example) offering ground-breaking cloud computing or providing new technological solutions to society’s problems, such as the current tight labour market. The team are conscious of the market’s current sentiment about pandemic recovery stocks, and so have repositioned ATT’s portfolio towards cyclical stocks to capitalise on the market rotation. We cover the team’s approach to investing, and the recent changes made, in the Portfolio section.

ATT’s performance is enviable, with the trust having outperformed both its benchmark and closest peer over the long and short term, as we outline in the Performance section. While the team’s trend-centric approach is conducive to long-term growth, ATT has been a standout performer since the start of 2020 with NAV returns over three times those of global equities, outperforming by 64%. As a growth-oriented strategy ATT carries with it enhanced volatility; however, its strong return profile more than makes up for this, with the trust having delivered attractive risk-adjusted returns.

ATT currently trades on a 7% discount which, as we describe in the Discount section, is anomalous compared to its long-term average.

We believe ATT continues to offer investors a differentiated way of accessing the long-term growth potential from technology companies. ATT’s attributes include the continuity and experience of the trust’s management team, their long-term approach to stock selection and trend identification, and ATT’s continued track record of outperformance (although past performance should never guide one’s expectations of future returns).

ATT also brings with it unique factors which further enhance its attractiveness. The team continue to hold a substantial weighting to mid-cap stocks, which not only enhances ATT’s potential returns given the higher growth rates the team associate with the sector, but also improves the diversification benefits. We believe that ATT’s higher volatility is offset not only by its strong performance, but also by its unexpected downside protection because of its low downside capture ratio relative to both global equities and its benchmark, a result of its idiosyncratic portfolio and high active share.

Our confidence in the strategy is bolstered by the team’s recent changes to ATT’s portfolio, which demonstrate that the team are not only able to identify the emerging trends within technology, but are also able to adapt the portfolio to near-term market dynamics. This is an important consideration given the volatile period growth stocks have seen since Q4 2020. As a result, we believe that ATT’s current discount is an anomalous but attractive entry point which is the result of near-term aversion to high-growth strategies, rather than a reflection on ATT’s long-term prospects.