Portfolio Overview

The Allianz Technology Trust’s NAV returned 12.9% in April, outperforming the Dow Jones World Technology Index return of 11.8%. During the month, stock selection contributed to relative performance, while industry allocation detracted. For the year to date period, the Trust’s NAV returned 11.3% and significantly outperformed the benchmark return of 4.6%.

Our position in Amazon.com was also a top contributor in April. Shares outperformed in this unprecedented period as the company emerged as a beneficiary across a number of fronts. With consumers homebound, many went to Amazon’s online marketplace to purchase home goods. Amazon’s fulfillment capabilities have been pushed through this period but have performed well. The company announced it will be hiring approximately 175,000 workers to meet the influx of demand. Amazon’s web-hosting business has also benefitted as consumer and corporate usage has surged. We believe consumer behavior is likely to shift even more so online to trusted providers that can deliver goods and services effectively.

Our position in cloud security company CrowdStrike was the top contributor during the period. In March, the company reported a very strong quarter with annual recurring revenue growth of +92% and free cash flow of +$50.7M vs. the consensus estimate of -$17.5M. The CEO noted that the competitive landscape has never looked better. Guidance was also impressive, with next quarter and fiscal year revenue guidance well ahead of consensus estimates. The company is utilising remote video conferencing for sales meetings and reported that first business meetings are actually up 13%. As workforces are working remotely due to the global coronavirus outbreak, endpoint and cloud security remain very high priorities for CEOs. CrowdStrike is also seeing a demand boost from customers who are looking to migrate away from Symantec after it was acquired by Broadcom. Despite the uncertainty in the market, CrowdStrike is seeing little impact on its ability to close business. Cyber threats continue regardless of the environment, and the threat landscape grows exponentially with a move beyond a physical office (i.e., an increase in remote workers). As the numbers of customers continue to rapidly increase, those customers are also adopting a larger number of solutions across CrowdStrike’s platform.

Other top active contributors included overweight positions in Tesla and Okta and an underweight position in Alibaba

Our position in Zoom Video was the top detractor during the period as competitors increased their free video conference offerings. Zoom provides a video-first communications platform that changes how people interact. The company has been making extensive investments in security and artificial intelligence technology to help make meetings more productive, transparent, and useful. During the pandemic, tens of millions of new customers have flocked to the platform with employees attending meetings while working from home, students engaging in remote learning setups, and individuals maintaining contact with their personal networks. Zoom is a clear beneficiary from remote worker and social distancing trends.

Our underweight position in Apple, one of the largest holdings in the benchmark, was also a top detractor from relative performance. Shares rallied in April along with the market and ended the month with a positive year-to-date return. Data from China indicated a rebound in iPhone sales in March following a steep decline in February when shelter-in-place restrictions were in effect. To help in the fight against COVID-19, Apple and Google announced a partnership to create contact tracing apps for both iOS and Android devices. Apple released the second-generation of its lower-end iPhone, the iPhone SE, with a starting price of $399. The lower price point could create strong growth opportunities in emerging markets like India and China, which in turn could significantly increase the installed base of users and drive demand for wearables/accessories and services. Analysts’ supply chain checks indicated that near-term iPhone demand has fallen due to the pandemic, but that strong demand for the iPhone 12 is still expected. The portfolio’s weighting in Apple continues to be significantly underweight relative to the benchmark’s large position.

Other top active detractors included overweight positions in Take-Two Interactive and RingCentral and an underweight position in Facebook.

Market Outlook

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.