One way to invest in the technology sector

Allianz Technology Trust seeks out the best growth opportunities in this exciting area of investment.

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  1. Rob Morgan

Technology shares have been highly popular with investors in recent years, and it’s not hard to see why. The rapid growth rates of tech giants such as Amazon, Google and Facebook has continued despite their huge size, defying more traditional investment logic that it’s harder to grow a large business than a small one. Indeed, their growth is partly a function of their size. The multiplication effect of their deep networks of customers allows them to expand existing markets and forge into new ones with comparative ease.

One way to capture the growth of the technology sector is by buying individual shares. However, unless you have a lot of money to invest this tends to mean backing a small number of companies, or else having to pay out a significant amount in dealing charges. A way around this is to buy one investment that captures the whole sector for you, one example being Allianz Technology Investment Trust. This invests on a worldwide basis with the aim of long-term capital growth in excess of the Dow Jones World Technology Index.

As well as offering exposure to many of the large US technology companies, an attraction of the Trust is that it also targets the next wave of exciting technology companies. Manager Walter Price and his team are not constrained by referencing an index, which can mean zero or minimal weights in some of the established tech companies which they don’t believe have their desired level of future growth potential – one current example being Apple. It also means they are free to express their views on smaller firms.

Following a very strong few years, performance in recent months has been impacted by a sharp ‘rotation’ in investor sentiment from high growth stocks, including the tech sector, to value and cyclical stocks in less fashionable areas. Mr Price suggests the rotation is a temporary phenomenon, driven more by the significant prior outperformance and higher valuations of high growth stocks, rather than a dramatic shift in the fundamental prospects. He believes conditions remain favourable for growth stocks with factors that have seen them rise in popularity, including low yields, low inflation and accommodative monetary policy from central banks, all likely to remain intact for some time.

Mr Price also points out that digital transformation is the top priority for many companies across the economy, as it increasingly becomes a critical driver of growth, productivity, and competitive positioning. This, he believes, will favour ‘new’ over ‘old’ tech businesses even in the event of an economic slowdown because company budgets for digital transformation will be the last to be reduced. The growth in technology, he urges, is coming from the creation of new markets, rather than from the growth of the gross domestic product, providing resilient as well as rapid growth opportunities.

Translating this into investment strategy, Mr Price suggests the best approach is finding companies generating ‘organic’ growth by creating new markets or effecting significant change in old ones. Industries such as autos, advertising, security, retail, and manufacturing are all being shaped and transformed by an ongoing wave of innovation and he seeks to identify companies with “best-in-class solutions” while balancing the opportunities with the risks inherent in any period of rapid change. Among the themes, the manager sees as particularly important are electronic vehicles, 5G and greater connectivity, ‘smart cities’ and ‘smart factories’ and online payments.

Online security is also an area of focus through holdings such as Zscaler, which operates a cloud-based security platform providing web and mobile security, threat protection and networking solutions. Customers are increasingly adopting Zscaler’s products, which provide a single platform to enforce business and security policy for their users to access multiple applications and services.

The manager has been consistent in refusing to retreat into the more defensive ‘old tech’ stocks when volatility strikes, instead aiming to take the opportunity to top up favoured positions. This led to a particularly bruising end to 2018, and to a lesser extent recently. The Trust generally represents a more adventurous option in its sector due to this stance. There is also relatively little exposure to China, where Mr Price is currently wary of a slowdown, and at present it is almost exclusively US-focused.

 

Our view

With their deep company knowledge and analysis, we continue to rate the managers of the Trust highly. Well resourced, based close to California’s Silicon Valley and working together for over 30 years we believe they should be capable of providing superior long term returns versus their benchmark and peers.

The flexible, high-conviction stock-picking approach that constantly seeks out the best growth opportunities could represent an exciting investment, but given the high level of volatility involved, as well as the specialised nature of the sector, it should be considered particularly adventurous and only form a small part of a diversified portfolio. The Trust remains part of our Foundation Fundlist of preferred investments across the major sectors.

 

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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