Allianz Technology Trust: A steady hand in a volatile market

With Elon Musk, one of the world’s most-prominent technophiles, guiding the hands of the incoming 47th President of the United States, surely we can expect another spike in the valuations of technology companies and firms involved in technological innovations – well, as long as Musk remains in situ.

One of the best ways of getting a window on existing and up-and-coming technological innovations is through investing in the Allianz Technology Trust [LON:ATT], a GBP1.5bn investment trust that is part of the Association of Investment Companies’ Technology and Technology Innovation sector.

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The sector has four funds, ranging from the very small Super Seed Capital, a GBP2m very early-stage investment vehicle to the well-established GBP4.4bn Polar Capital Technology [LON:PCT] investment trust, with the two big funds, Polar Capital and Allianz tending to throw their considerable bulk behind the tried-and-tested behemoths of the sector like Nvidia NASDAQ:NVDA, Apple NASDAQ:AAPL and Meta NASDAQ:META and the smaller trusts backing more esoteric startups, that most people outside the technology industry would likely never of heard of, but the managers think may become the next ‘unicorn’.

As such, in terms of risk profile and returns, it’s quite difficult to compare and contrast the quartet, with the only common link being that the funds in the sector all invest in the broad spectrum of technology or technology innovation.

There at the start of a new age of technology

The Allianz fund has been trading since 1995.  Just to reminisce, this was about the time the majority of the world was sending its first emails, most internet was still dial-up, AOL and Nokia were the big tech giants, with Napster not yet a thing. People still bought newspapers daily. Fast-forward 30-years and technology has changed the world, and as processing power and speeds increase, new innovations are coming thick and fast, not least AI and robotics.

The Allianz Technology Trust’s investment team sit in San Francisco, close to Silicon Valley, where many of the world’s new technologies emerge – and most of the big tech companies are headquartered – and is led by Michael Seidenberg. Seidenberg has been with Allianz for 15-years, since the amalgamation of most of Voya Investment Management’s investment infrastructure into Allianz. Seidenberg was an equity analyst for Voya. He is assisted by Eric Swords and Danny Su, also Voya alumni.

The fund aims to achieve long-term capital growth by investing principally in the equity securities of quoted technology companies on a worldwide basis and is benchmarked against the Dow Jones World Technology Index (sterling adjusted, total return) and has an ongoing charge of 0.7% before performance fees.

Seidenberg said: “The outlook for technology companies continues to look increasingly attractive thanks to expectations of continued outsized growth relative to other segments of the market, coupled with a reasonable valuation level relative to history. The potential impact from additional central bank rate cuts and the clarity from the US Presidential election are likely to further accelerate investor sentiment toward the asset class.”

The investment trust is the top performer in its (albeit small and unbalanced) sector (on a share price total return basis to 15th November) with a +36% return against a sector average of +34.8%, a reasonable return on investment given a very volatile year. Over five-years investors would be up +135.62% against a sector average of +125.3% and over a decade, up +579.61%. The fund trades at a -11.5% discount-to-premium, and as all the funds in sector, and other tech companies as a rule, has offered zero dividends.

Vertical and horizontal diversification

The fund managers try to prioritise diversification, mainly through technology sub-sector, but stock-picks must reflect the driving principle of the fund – to allow investors exposure to those technology companies that are making the biggest strides in addressing major growth trends in innovation, developing products and services that replace existing technology, or the ways that we do things, in a radical and innovative manner.

The managers have a global mandate, but the nature of their investment process means that most of the companies that find their way into the Allianz are mid- or large-cap stocks and primarily in North America. And given the financial muscle of the largest tech companies, their ability to snap up pretenders to the throne is immense.

Seidenberg said: “Our expectation is that merger and acquisition activity may continue to rise as capital markets continue to show signs of strength, which bodes well for companies further down the market cap spectrum. Amid any potential volatility, we are opportunistically looking to upgrade select names and add to our highest conviction ideas to better position the portfolio for improved performance.”

The fund managers have a bottom-up approach to portfolio-building, looking at individual companies on their own merit, that can solve societal and corporate problems, but offer performance over long-term. The manager said: “Despite short-term periods of higher volatility, earnings growth ultimately drives stock prices over the long term and in our view, we are still early in the spending trend supporting this dynamic segment.”

The fund’s top five holdings as at 31st October 2024 were:

The Allianz Technology Trust offers investors a well-diversified exposure to the global technology sector. With a focus on identifying and investing in innovative companies, the fund has consistently delivered strong performance over the long-term. As the world continues to become increasingly reliant on technology, the fund’s potential for future growth remains significant.