Portfolio Overview

The Allianz Technology Trust’s NAV total return was 0.52% in February, outperforming the Dow Jones World Technology Index return of -0.62%. During the month, stock selection and industry allocation contributed to relative performance.

Our underweight position in Apple, one of the largest holdings in the benchmark, was the top contributor to relative performance. Shares were down in February after the company released December quarter results that beat expectations but provided a cautious outlook for the current quarter. Apple reported double digit growth across all product categories and record iPhone revenue. Demand from China was particularly strong with 57% year-on-year growth driven by demand for the new 5G iPhone. New products and wearables were particularly strong for both AirPods and Watch, and the installed base of active devices reached an all-time high of 1.65 billion. Apple generated record operating cash flow and returned over $30 billion to shareholders during the quarter. In this challenging environment, the company continues to execute and deliver solid profitability and strong free cash flow. In part, Apple is benefitting from the work-from-home trend as reflected in strength in their desktop and tablet product categories. Apple remains one of the largest positions in the portfolio but continues to be significantly underweight relative to the benchmark’s large position.

Our position in memory chip supplier, Micron, was also a top relative contributor. Shares have outperformed since the company reported quarterly financial results in January that beat expectations. Investors reacted positively to management’s comment that Dynamic random access memory (“DRAM”) had passed the bottom of the industry cycle and should experience improving trends throughout 2021. NAND commentary was more mixed, with management expecting the market to stabilise over the course of 2021 if suppliers moderate production growth. Micron’s business should benefit from a host of new applications such as data center servers, 5G infrastructure, smartphones, and automotive end markets. The company remains well positioned to benefit from industry supply discipline and long-term demand trends in mobile and cloud computing.

Other top active contributors included overweight positions in Expedia and Zillow and an underweight position in Alibaba.

Our position in lithium ion battery producer, Samsung SDI, was a top relative detractor during the period. After strong performance in January, shares declined along with the broader market selloff toward the end of February. The company’s most recent quarterly financial results missed expectations, but management provided a positive outlook across all major segments. Electric vehicle battery sales increased by more than 30% quarter-on-quarter as the company continued to capture market share. Samsung SDI has the potential to benefit from the accelerating revolutionary transformation of the auto industry toward a new era of fully electric vehicles.

Our position in Amazon.com was also a top relative detractor. The company reported Q4 results with both sales and profit handily exceeding expectations as the company is clearly demonstrating its ability to profitably operate at higher volume and cost created by the pandemic. The sales results were driven by strength in its North American and International marketplaces, both growing nearly 50% year-on-year. AWS sales growth remained steady around 30%, while management called out a 68% increase in the backlog. The company also announced that founder and CEO Jeff Bezos will transition to the role of executive chair in the third quarter of 2021 and will be replaced by the CEO and founder of AWS, Andy Jassy, who has been with the company since 1997. We think this is a well-deserved promotion for Mr. Jassy, given his incredible success in building the AWS business. The segment continues to produce rapid revenue growth while also delivering strong profit growth. In our view, the pandemic has strengthened Amazon’s long-term competitiveness as demand for e-commerce and cloud computing has increased

Other top active detractors included an overweight position in Tesla, an underweight in Shopify, and not owning Twitter.

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. 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.