Fund Review: Allianz Technology Trust

The trust was launched in December 1995 and is benchmarked against the Dow Jones World Technology index. It was known as the RCM Technology Trust until its name was altered 12 months ago in a bid to remove the last of the RCM branding from Allianz’s UK retail funds. Ongoing charges of 1.21 per cent apply to this product.

Portfolio manager Walter Price asserts that ultimately he is looking to identify “global leaders” in the technology field and the attractive growth sub-segments within this sector. For example, like many of his peers he views the move to cloud computing – where corporations store and run their data on internet-hosted servers instead of computer hard drives – as “revolutionary”. He says: “Cloud technology marks a major change in enterprise architecture, and this only happens about once every 20 years.”

Mr Price explains that a major attraction of the innovation from an investment perspective is that cloud technology is fundamentally a subscription-based service. “Firms need customers to be happy in order for them to renew, so cloud company interests are therefore aligned with the customer,” he notes. He cites retailing giant Amazon as a leader in the space given that it dominates about three-quarters of the market, although he adds that Microsoft is hot on its heels.

Another theme that is representative of the type of opportunity the manager is seeking is that of security, which is also linked to the rise of cloud technology. “People need more security now than they ever have, and we see a 50-100 per cent company spend increase in security,” he says.

While the major change to the fund in recent years has been its rebranding, Mr Price notes that there has been a marked sea change across the technology space overall. “A significant part of the sector [is] a value play as opposed to growth only,” he says. He labels Apple and Microsoft – both top-10 holdings – as value plays and notes that while these firms are still growing, albeit at a slower pace, they have plenty of free cash on their books.

While the economic backdrop typically stays in the background for the manager, he notes: “We do not adjust the fund as a result of macroeconomic events. We look for global leaders and sometimes that can change as a result of external factors.” Mr Price cites the weaknesses of both the euro and the yen versus the US dollar, which has spurred him on to making investments in Europe and Japan. He adds that Japanese electric motor manufacturer Nidec – which makes products for hard-disk drives – has been one of his best investments.

In the five years to June 23, the Allianz Technology Trust has achieved a total return of 116 per cent, comfortably outperforming the 83 per cent rise of its benchmark, the Dow Jones GL World Technology index. Across three years, the portfolio is also way ahead of its yardstick at 108 per cent versus the index’s 59 per cent. However, the more cautious backdrop during 2014 witnessed its performance fall more in line with its benchmark, with both the fund and the index up just 21 per cent as investors sought out large caps.

“We have around a third of the portfolio in growth mid-cap stocks, and during more risk-off periods – as I would describe 2014 – the performance falls more in line with the index,” Mr Price says. However, he notes that more recently Amazon has been a strong contributor to performance, as has security software provider Palo Alto Networks after the firm delivered decent first-quarter earnings results and a forward guidance that topped expectations.

In contrast, cloud computing company Rackspace Hosting was among the top relative detractors. “The company reported earnings results that were in line with estimates, but forward guidance was well below expectations,” he says.

Looking ahead the manager is upbeat in his expectations, chiefly on the back of the cloud-computing phenomenon. He says: “I believe this is the year when even more companies will decide to switch over. Once firms move to a cloud they do not go back. I have had company chief executives say that after switching they never want to buy another piece of hardware again.”

EXPERT VIEW

Martin Bamford, chartered financial planner and managing director, Informed Choice

This trust offers investors a relatively concentrated portfolio of around 60 stocks. It has a bias towards mid caps and is underweight in large-cap stocks, and therefore does not seek to track an index. One big theme for this trust is cloud computing and software as a service, which the manager believes has big growth potential. As a result, around 20 per cent of the portfolio is directly exposed to this theme. One advantage this fund has over other technology vehicles is the physical location of the manager in San Francisco. He is one of the most experienced managers in this sector and this trust is a regular award winner.