Portfolio Overview

The Allianz Technology Trust’s NAV total return was -3.1% in March, underperforming the Dow Jones World Technology Index return of 1.3%. During the month, stock selection and industry allocation detracted from relative performance.

Our position in semiconductor capital equipment maker, Applied Materials, was one of the top relative contributors. A global supply shortage of semiconductors has driven the shares of chip production equipment makers higher as major chipmakers are increasing their capital expenditure budgets. Applied Materials sees a favourable long-term outlook for the overall semiconductor equipment market, including positive trends in the memory segment. The semiconductor equipment business continues to track favourably driven by a broadening of end-applications, such as cloud computing, big data, artificial intelligence (AI), internet of things (IoT), automotive, and gaming. Applied Materials should be a beneficiary of more favourable supply/demand dynamics and ever-increasing capital intensity of semiconductor production.

Our position in computer hardware provider, HP, was also a top relative contributor during the period. The company reported quarterly financial results that beat expectations driven by work-from-home and remote learning demand across both PCs and consumer printers. Notebook, gaming, and peripherals revenues were very strong, and printing supplies returned to growth. There remains an increasing demand for commercial products as the economy recovers and workers return to the office.

Other top active contributors included underweight positions in Tencent and Alibaba and not owning Baidu.

Our position in CrowdStrike was a top relative detractor during the period. The company reported robust Q4 results across the board with revenue, annual recurring revenue (ARR), and profitability all ahead of estimates. ARR grew 75% year-on-year, bookings were strong with remaining performance obligations (RPO) up 78%, and net customer additions came in at an all-time record. CrowdStrike added 1,480 net customer additions in Q4, and now has 9,866 total subscription customers, up an impressive 82% year-on-year. While the company has seen consistently strong demand with the large enterprise, the low-touch frictionless model is also resonating with small-to-medium-sized enterprise customers. CrowdStrike also continued to demonstrate solid upsell success, with the percent of subscription customers adopting 4+ modules increasing to 63% at the end of the fiscal year. The company has a native cloud platform advantage versus peers and is expanding into additional security segments to capture a greater share of security budgets.

Our underweight position in social network company, Facebook, was also one of the top relative detractors. The stock benefited from management reporting confidence in its ability to adapt to Apple’s imminent privacy changes that will require permission to use Identifier for Advertisers (IDFA) data. While IDFA changes are an industry-wide risk to the online advertising space, we believe Facebook is unique in terms of its reach and ability to precisely target consumers with advertising.

Other top active detractors included overweight positions in MongoDB, Twilio, and Zscaler.

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 and 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.