Allianz Technology Trust 26 November 2024
Disclaimer
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.
Allianz Technology Trust (ATT) aims to harness the extraordinary growth unlocked by new developments in the tech sector, as they spread out from early adopters to become embedded across the economy. Over the last decade the trust has delivered over 730% to investors. This is a hard figure to picture, so might be better thought of as 25% a year, each year, for ten years. As we highlight in the Performance section, the trust performed outstandingly well in both the first five years and the second five years of this period, as the technology ecosystem has transformed itself but maintained exceptionally high earnings growth.
The trust is managed by Mike Seidenberg, a multi-decade specialist in the sector, who works with an equally experienced and equally specialist team based in Silicon Valley. The managers have great access to corporate management teams and to competitors, suppliers and clients in the tech ecosystem. Mike aims to diversify the portfolio across the key themes he sees as likely to deliver growth in the coming years, and identify those businesses best able to lead the way by generating high levels of free cash flow. As well as AI, key themes in the current portfolio are cybersecurity and the cloud, while Mike has built up a meaningful overweight to software, in recognition of what he sees as attractive valuations.
Discounts widened across the investment trust sector in 2022 and 2023, and ATT did not escape, despite the strong returns delivered in 2023 and in 2024 so far. The discount is 10% at the time of writing, with the board having implemented a meaningful buyback programme.
In our view the double-digit Discount on ATT and its sector peers’ shares stands out as one of the most attractive opportunities in today’s investment trust sector. The technology sector has delivered exceptional returns over the past two years, backed up by stellar earnings growth from some of its largest components. NVIDIA’s latest quarterly earnings were up 122% on last year’s and Meta’s 19%, while Microsoft has posted 19% earnings growth for its 2024 financial year. ATT has ridden this wave to NAV returns of c. 36% over 12 months, yet the shares trade on a 10% discount. In our view, this makes no sense, and is a glaring opportunity to access the hottest sector in global markets, which is being fuelled by the transformative power of AI and trades on healthy stock-level valuations, on a 10% discount. The reasons for that discount seem to us to be technical, and to do with the UK investor hiding in high interest cash accounts and bonds. This has not worked well.
We think ATT is an attractive way to access the growth opportunities in the tech sector. Mike and the team are on the ground in the thick of the action, and between them have many decades of experience specialising in the sector. The approach is measured, with considerable attention paid to diversifying the risks in the portfolio, which we think is prudent, given the potential volatility in the sector. In particular, we note that the portfolio has the potential to benefit if the heat comes out of the AI trade and investor attention broadens out into other themes where the growth opportunity looks good but the valuations are less aggressive.
Bull
- Discount may offer a great long-term entry opportunity
- More diversified technology exposure, greater focus lower down the market-cap spectrum
- Strong performance track record, may continue in an easing macro-environment
Bear
- At times volatility can be higher than more diverse global equity strategies
- Single sector focus increases sector-specific risk
- High growth strategy may underperform in a value-driven market