Portfolio Overview

The Allianz Technology Trust’s NAV returned 5.8% in August, underperforming the Dow Jones World Technology Index return of 7.3%. During the month, stock selection and industry allocation detracted from relative performance. For the year to date period, the Trust returned 41.9%, significantly outperforming the benchmark return of 24.0%.

Our position in electric vehicle maker, Tesla, was the top relative contributor during the period. Shares surged after the company announced a five-for-one stock split to take place at the end of August. Additionally, optimism around potential inclusion in the S&P 500 Index after the company achieved profitability in the latest quarter contributed to the rally. We believe the upcoming battery day in September will be a positive catalyst. Moreover, the work on the company's factories in Germany, Texas, and Shanghai appears to be progressing at surprising speed. With the rapid scaling of their vehicle production and further planned capacity, our earnings power estimates have increased significantly over the past several months.

Our position in small-business payments and software provider, Square, was also one of the top relative contributors during the period. The company reported strong second quarter results that included better trends across both seller and consumer ecosystems. Seller volumes declined 15% during the quarter, but Square fared better than many payments peers, as it added many new merchants who needed more mobile and online-friendly payment services. Consumers downloaded and transacted on Square’s Cash App at an accelerated rate with physical forms of payments disrupted due to COVID-19. We believe these trends speak to the strength of Square’s platform of products, which enable businesses and consumers to transact and operate in a more digitally oriented world.

Other top active contributors included an overweight position in Zoom Video, not owning Cisco Systems, and an underweight position in Tencent.

Our underweight position in Apple, one of the largest holdings in the benchmark, was the top relative detractor during the period. Shares continued their strong outperformance after the company reported quarterly financial results well ahead of expectations at the end of July. During the month, Apple became the first American company to reach a market capitalization of $2 trillion. The strength in the quarter was driven by iPhone, iMac, and iPad sales that more than offset slightly weaker sales in wearables/accessories. In part, Apple is benefitting from the work-from-home trend as reflected in strength in their PC and tablet product categories. iPhone demand has picked-up meaningfully coupled with the launch of the second-generation of its lower-end iPhone, the iPhone SE, with a starting price of $399. The lower price point creates strong growth opportunities in emerging markets like India and China, which could significantly increase the installed base of users and drive demand for wearables/accessories and services. The reopening of the economy as well as the beginning of the new 5G iPhone product cycle should provide a supportive environment for the remainder of the year. Apple remains the largest position in the portfolio but continues to be significantly underweight relative to the benchmark’s large position.

Our position in Twilio was also one of the top relative detractors during the period. The company reported solid quarterly financial results driven by revenue growth of 46% year-over-year. Weakness in verticals such as travel, hospitality, and ride sharing were more than offset by its diversified customer base and strength in elevated use cases in education, health care, and retail. While the overall results were positive, they fell short of elevated investor expectations, and shares pulled back following very strong outperformance since the market lows in March. Twilio provides a cloud-based platform that enables developers to build, scale, and operate real-time communications within software applications as a pay-as-you-go service. Customers across industries are turning to the company’s customer engagement platform to help accelerate their digital transformation efforts. We continue to see Twilio offering differentiated solutions and strong developer relationships in the communications platform-as-a-service market.

Other top active detractors included an underweight position in Salesforce.com and overweight positions in Micron Technology and Datadog.

Market Outlook

While technology stocks have pulled back recently, we remain confident that long term trends continue to favour the sector. In our view, the technology sector continues to benefit from strong tailwinds which should continue to drive attractive long term appreciation. There is no question in our minds that the present events around the COVID-19 crisis will spur the use of technology and change how we live and work in the future. As companies adjust budgets due to supply and/or demand disruptions, the need for companies to reduce costs should accelerate the move to cheaper and more productive solutions such as cloud, software-as-a-service, artificial intelligence, cyber security, etc. We are in a period of rapid change, where the importance of technology is key to the prosperity of most industries. This environment is likely to provide attractive growth opportunities in many technology stocks over the next several years.

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.