Portfolio Overview

The Trust’s NAV fell by 1.32% in September, outperforming the benchmark return of -1.68%. 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 (SMB) and monetises many of these products through transaction processing. Shares rallied after the company introduced its new Square Payroll App and an analyst significantly raised his price target for the company’s shares. The company has been effectively adding new services to its platform to make the total value proposition more compelling for customers. Square’s recent acquisition of Weebly as well as the monetisation opportunities for its Cash App could provide additional growth drivers for the company. Square’s subscriptions and services are key differentiators against other processors and include a variety of offerings designed to help customers operate their businesses more efficiently.

Our position in Okta was also a top relative contributor in September after reporting strong quarterly results driven by 59% revenue growth and record customer additions. Okta is a data security provider offering services such as automated user management, integration, mobile identification, multifactor authentication, and reporting software. Okta has an opportunity to disrupt the large market for identity and access management. The company has developed a highly scalable identity platform with integrations to over 5,000 applications. With the large number of applications and over 4,000 customers, Okta is beginning to see a network effect developing. The company also benefits from the shift to the cloud as customers looking for an identity management solution for cloud applications are attracted to the wide range of applications.

Other top active contributors included an underweight position in Facebook and overweight positions in Advanced Micro Devices (AMD) and Activision Blizzard.

Cloud networking software and hardware provider, Arista Networks, was a top relative detractor during the period. Shares jumped in August on news of the company’s inclusion in the S&P 500 Index, but then pulled back in September. The company provides cloud networking software and hardware for Internet and Cloud service providers, as well as next generation datacenters. Its products include modular cloud networking platforms that enable in-service upgrades and application extensibility.

Our position in Proofpoint was also a top relative detractor in September. Shares came under pressure as investors became concerned about the potential for management to issue conservative 2019 guidance. The company’s emerging products category, which includes Email Fraud Defense, Threat Response, Targeted Attack Protection, and Social Media Protection, is expected to be a driver of future growth. The company continues expansion efforts in Europe as they anticipate increased spending this year by companies seeking to comply with the EU’s new General Data Protection Regulation. Proofpoint is benefiting from several growth drivers, and the power of its Software-as-a-Service model is beginning to generate leverage and produce solid free cash flow growth. Email security is a mature market and Proofpoint could continue to capture market share as enterprises shift to cloud-based infrastructure and adopt more of the company’s products, which include broader data security, advanced malware protection, and security analytics.

Other top active detractors included overweight positions in Teradyne and Tesla and an underweight position in Microsoft.

Market Outlook

Our view is that technology is well-positioned to remain a major driver of market returns. The combination of solid global GDP growth, strong corporate earnings, domestic tax cuts in the US, and the ongoing digital transformation among corporations should continue to drive growth in IT spending. Feedback from our discussions with company management teams, as well as management surveys from multiple sources, indicate that companies across the economy are turning to technology solutions to increase revenue, improve productivity, and enhance operating efficiency. While the largest technology companies today will inevitably struggle to grow as rapidly in the future, the broad technology sector should continue to see attractive growth in the future.

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 Gross Domestic Product growth. Investors need to find companies generating organic growth by creating new markets or effecting significant change on old markets. Industries such as automobiles, advertising, security, retail, and manufacturing are all being shaped and transformed by advances in technology.

We will continue carefully balancing risks and opportunities, leveraging our industry expertise, and emphasizing individual stock selection.