Portfolio Overview

The Trust’s NAV rose by 4.8% in March, underperforming the Dow Jones World Technology Index return of 5.7%. During the month, both stock selection and industry allocation detracted from relative performance.

Our position in cloud security company Zscaler was the top relative contributor during the month. Shares soared after the company’s financial results surpassed expectations driven by revenue growth of 65% year-on-year. Management raised guidance due to the strong pipeline for new business and upsell opportunities with existing customers. The company operates as a Security-as-a-Service (SaaS) company, offering a cloud-based security platform. The platform provides web and mobile security, threat protection, cloud application visibility, and cloud-enabled networking solutions. Cloud adoption is becoming more and more widespread, which will require ongoing security solutions.

Cloud networking software and hardware provider, Arista Networks, was also a top relative contributor during March. Shares continued to outperform following the release in February of solid financial results with revenue growth of 27% year-on-year. Management’s outlook for the current fiscal year was better than anticipated with growth from enterprise customers and adoption of 100G network technologies offsetting some large customer slowdowns. Arista provides cloud networking software and hardware for Internet and Cloud service providers, as well as next generation datacentres. Its products include modular cloud networking platforms that enable in-service upgrades and application extensibility.

Other top active contributors included overweight positions in MongoDB, Amazon.com, and Nemetschek.

Our position in Square was a top relative detractor during the month. The company develops business management software for small- & medium-sized businesses (SMB) and monetises many of these products through transaction processing. Shares fell in March following strong gains in the prior two months. At the end of February, the company reported solid earnings results but issued first quarter guidance that was below expectations. However, the full year outlook was generally in-line with prior commentary.

Our position in Okta was also a top relative detractor in March. The company reported quarterly results that exceeded expectations with revenue growing 50% year-on-year driven by strong subscription growth. Management provided guidance for continued revenue growth this year, but some investors were concerned by its guidance for operating losses due to investment spending. After meeting with the company’s Chief Operating Officer and co-founder, our conviction in Okta becoming the standard in the emerging market of modern enterprise identity management remains high. Okta is a data security provider offering services such as automated user management, integration, mobile identification, multifactor authentication, and reporting software. Okta has a compelling opportunity to disrupt the large market for identity and access management. With the large number of applications and over 5,000 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 detractors included not owning Apple and our overweight positions in Tesla and Nutanix.

Market Outlook

Our view is that technology is well-positioned to remain a major driver of market returns. 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. We believe this is a multi-year transition which is still in the very early stages. 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 economic 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 are seeing an ongoing 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.

Despite high valuations for some high growth companies, we continue to see massive addressable markets much larger than the revenue today. However, we have consolidated our exposure to these areas in select companies having the most compelling solutions and whose business models demonstrate a discernible path to deliver strong earnings and cash flow growth over the next few years.

We are also finding excellent investment opportunities among more attractively valued areas of technology. In particular, certain technology incumbents are making compelling progress on their “as-a-service” offerings.