The strong performance of the tech sector has raised fears about another bubble, but the managers of the Allianz Technology Trust believe that the current environment provides significant growth opportunities.
Anyone who put their money into technology funds after the global financial crisis more than ten years ago would have been richly rewarded as it has been one of the best performing areas of the market and this trend has continued throughout the pandemic.
The managers of the £790m Allianz Technology Trust (LON:ATT) have recently provided an update in which they said that the valuations in the tech sector remain attractive and are more reasonable than during the ‘dot-com bubble’ with the stocks now producing tangible earnings and cash flows.
ATT has a larger allocation to the mid-cap stocks in the sector than the Dow Jones Global Technology benchmark, as the managers mainly focus on higher growth companies that tend to be smaller. This means that it has a lower allocation to the mega caps like Microsoft, Apple and Facebook, even though they are still amongst its ten largest positions.
Winners and losers
There were some significant changes made to the fund at the onset of the pandemic with exposure to China reduced to minimal levels due to the threat of the US/China trade war. Holdings that were likely to be severely affected by the virus were sold and the cash has since been used to buy stocks that are likely to emerge stronger after the lockdown.
The managers believe that companies in the tech sector that are exposed to areas such as travel, live events, offline retail and cars will suffer more than others. They also think that the pandemic has accelerated certain trends, including the growth of e-commerce, the shift in favour of electric cars, the movement of entertainment to subscription channels and the prioritisation of cloud-based infrastructure.
One interesting opportunity that they have seen is Booking.com, as they think that people will be keen to go on holiday once lockdown is eased. The increase in home working should boost the demand for both 5G and cyber security, with the holdings in this area including the semiconductor stocks Samsung and Qualcomm, as well as the security-related businesses Crowdstrike and Zscaler.
Well-placed to continue to perform
A potentially more contentious holding is Tesla, which tends to divide opinion. Lead manager Walter Price believes that the company is in a good position and has described the new Y model as the best car in the world. He expects sales to be strong and considers the market estimates for the company to be quite low.
ATT has performed strongly this year, with the NAV up 28% compared with 16% for its technology benchmark and two percent for MSCI World. It also has a strong long-term record.
The investment trust team at Winterflood says that the fund benefits from an experienced management team, which is based in Silicon Valley and this proximity gives it an advantage due to the preference for mid-cap, higher growth stocks. They think that the managers’ unconstrained and active investment style is well suited to take advantage of the opportunities created by the current market upheaval.