Fund Manager Comment

Walter Price

Walter Price
Fund Manager

Portfolio Overview

The Trust’s NAV rose by 6.9% in May, outperforming the Dow Jones World Technology Index return of 5%. During the month, both stock selection and industry allocation contributed to relative performance.

Our position in Square was the top relative contributor during the period. The company develops business management software for small & medium-sized businesses and monetises many of these products through transaction processing. Shares surged following the release of the company’s quarterly earnings results in which it demonstrated strong payment volumes growth and upside on revenues and profits. We believe Square is unique in the payments processing space in its employment of deep analytics and Artificial Intelligence (AI) which help it onboard and score the transaction risks in segments of the market that other processors have been unable to access economically.
Our overweight position in UK based cyber security company Sophos Group was also a top contributor after it reported strong fiscal year earnings and free cash flow ahead of analysts’ expectations and issued a very positive medium-term outlook. Sophos is a leading global supplier of corporate endpoint and network security. The business has strong recurring billings, global reach, and solid cash margins that allow for reinvestment. We see opportunities for Sophos to continue to grow faster than the market over the medium to long-term, with incremental additions from the recent acquisition of malware protection firm Invincea. We believe security spending will be an ongoing requirement and should remain a top priority for companies because of persistent security threats that are continuously evolving.

Other top active contributors included overweight positions in Workday and Micron and not owning Cisco.
Our underweight position in NVIDIA was the top relative detractor in May. NVIDIA designs and makes graphics processors (GPUs) used in gaming, high-performance computing, data center and automotive applications. The company’s GPUs are used in nearly all deep learning/machine learning applications for the purpose of training neural networks. Shares advanced after the company posted solid quarterly results and management modestly raised its outlook for the year. In the quarter, fast growth in the Data Center and Automotive segments drove the upside to consensus estimates and more than offset a slowing trajectory in the company’s largest segment, Gaming. While we maintain a favourable view of the long term opportunity for NVIDIA, we held a small position in the portfolio during the month given its rapid appreciation and higher valuation relative to other semiconductor stocks.
Our underweight position in Tencent Holdings was also among the top detractors during the period. Tencent is one of the dominant players in the Chinese market for social networking sites and online games. In May, the company reported strong quarterly sales and earnings that came in higher than analysts’ expectations. Tencent’s online game revenues grew more than 30% in the period driven in the main by the company’s original gaming titles such as “Honour of Kings” and “League of Legends”. We remain positive on the long-term opportunities for Tencent and certain other Chinese Internet companies. Broadly, the Chinese market represents a potentially huge audience of Internet users drawn by compelling locally generated content. We believe, like in the US, advertisers will follow their customers to these online formats and increase spending to levels proportional to the amount of time spent online.

Other top active detractors included overweight positions in Yandex, LendingClub, and Yelp.
Market Outlook

We continue to believe the technology sector can provide some of the best absolute and relative return opportunities in the equity markets – especially for bottom-up stock pickers. The growth in technology is coming from the creation of new markets, rather than simply economic growth. Investors need to find companies generating organic growth by creating new markets or effecting significant change on old markets. Sectors such as automobiles, advertising, security, retail, and manufacturing are all being shaped and transformed by advances in technology.
At present, we are seeing a wave of innovation in the sector that we believe has the potential to produce attractive returns for companies with best-in-class solutions. We also see a number of companies with present valuations that, in our view, do not fully reflect positive company- and/or industry-specific tailwinds.
Lastly, we believe the Augmented/Virtual Reality (AR and VR) theme is poised to accelerate in 2017. This theme has been slow to take off due to insufficient and expensive hardware and relatively new software applications. However, declining hardware costs, more gaming software availability, new mobile phones from Apple and Google, and ongoing AR work by Microsoft and Tesla with productivity applications should pave the way for this theme to deliver attractive growth.
We will continue carefully balancing risks and opportunities, leveraging our industry expertise, and emphasising individual stock selection.
Data as at 31.05.2017

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Walter Price
Fund Manager, Allianz Technology Trust PLC

The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation and anyone who acts on it, or changes their opinion thereon, does so entirely at their own risk. The opinions expressed are based on information which we believe to be accurate and reliable, however, these opinions may change without notice. This is no recommendation or solicitation to buy or sell any particular security. A security mentioned as example above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date. Past performance is not a reliable indicator of future performance. You should not make any assumptions on the future on the basis of performance information. The value of an investment and the income from it can fall as well as rise as a result of market fluctuations and you may not get back the amount originally invested.
 
 
 
 
 

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