It has been six months since Mike Seidenberg took over from Walter Price as lead manager of the £934m Allianz Technology Trust (LON: ATT),which has given him the necessary time to put his own personal stamp on the portfolio. The changes he has made have been described as ‘evolutionary, not revolutionary’ as you might expect given that Seidenberg has been a member of the team for more than a decade.
ATT uses a bottom-up stock picking approach, combined with top down analysis that aims to identify the key macro and market themes. The objective is to select fast growing companies at reasonable valuations that can benefit from these trends and that have the ability to deliver sustained growth over long periods.
Focusing on secular growth themes leads to a bias towards the mid and small caps in the technology sector, with the fund having significant underweight positions in the mega caps such as Apple, Microsoft and Alphabet. The ten largest allocations include several of these smaller stocks including: cyber security specialist, Palo Alto Networks; the data analytics provider Paycom Software; as well as Aspen Technology, which operates in the software solutions space.
The Changes
It has been a busy period for the fund sinceSeidenberg took over with portfolio turnover increasing to the top end of the ordinary range of 70% to 120%, which reflects the generally active approach and volatile market environment.Most of the sales have been in tail-end, lower conviction positions, with the number of holdings falling from over 50 to 46.
One of the most notable changes is the reduction in an off-benchmark allocation to Tesla that used to be amongst the ten largest positions, but now only accounts for 1.8% of the net assets. This was due to concerns over consumer exposure in China, along with Elon Musk’s well publicised involvement with Twitter.
A broader change has been the shift away from ‘hyper-growth’ names, as the risk-reward balance no longer looked appealing given the high valuations. The portfolio currently favours more cyclical options such as semiconductor stocks, which benefit from structural tailwinds, with high barriers to entry and technology that is difficult to replicate in the short-term.
Outlook
Walter Price had built up an exceptional long-term track record, despite the sharp sell-off at the end of his 15-year tenure as lead manager. The broker Numis says that further volatility is likely, but an actively managed portfolio of tech stocks has the potential to deliver attractive returns.
They point out that the high portfolio turnover will mean that the impact of the new manager’s approach will become evident more quickly than would otherwise have been the case. In their opinion, the wider sell-off of small and mid-sized technology companies has created an opportunity for a positive re-rating with the near double digit discount representing an attractive entry point for the fund.
Shares in Allianz Technology are down 41% in the last 12 months, yet despite this they are still up 79% over five years. The nearest equivalent is Polar Capital Technology (LON: PCT), which it has outperformed over both five and ten years.