The Allianz Technology Trust NAV total return was 8.2% in October, outperforming the Dow Jones World Technology Index return of 5.7%. During the month, stock selection and industry allocation contributed to relative performance.

Our position in electric vehicle maker, Tesla, was the top relative contributor during the period. Shares gained after the company reported quarterly results that included strong profit margin improvements driven by pricing decisions and scale efficiencies. After the report, news circulated that vehicle rental company, Hertz, had ordered a significant number of Tesla Model 3 sedans to electrify its fleet. We believe the near-term results could remain solid amid strong demand and ramping supply. We believe the world is now embracing EVs and the move toward sustainable transport has reached an inflection point.

Our position in collaboration software provider Asana was also a top relative contributor. The company’s recently reported quarterly financial results exceeded expectations driven by revenue growth of 72% year-on-year. Asana is benefiting from better-than-expected demand from large customers as well as strong international growth. Management raised revenue guidance driven by accelerating new customer growth, expansion of current customer contracts, investments in enterprise sales capacity, product enhancements, and international expansion. Asana offers a flexible and scalable work management platform that helps individuals, teams, managers, and executives coordinate and execute activities and tasks, streamline and automate workflows, and collaborate more effectively.

Other top active contributors included overweight positions in Cloudflare and Zscaler and an underweight position in Meta (Facebook).

Our underweight position in Microsoft was the top relative detractor. The company delivered another strong quarter and topped expectations for revenue and earnings. Total revenue grew 20% year-on-year, and guidance for the December quarter was also stronger than expected. Microsoft Cloud annual revenue surpassed $20 billion for the first time, growing 34% year-on-year and now accounting for 46% of total revenue. The company’s security segment reported 70 billion attacks having been stopped over the last year alone, and the customer base grew by 50%. Management further detailed plans to invest $20 billion over the next five years to advance Microsoft’s security strategy and solutions. This has demonstrated a continued strong execution across both established and emerging products. The urgency of digital transformation has increased due to the COVID-19 pandemic, and Microsoft has demonstrated its strategic position in helping customers along this journey, with a proven ability to execute across multiple vectors of growth. We remain underweight relative to the benchmark’s large position in the stock.

Our position in Twilio was also a top relative detractor during the period. The company 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. Shares fell after the company reported slowing organic growth in the latest quarter and management’s guidance suggested further deceleration. The company faced difficult growth comparisons this quarter, and we believe management is establishing a conservative outlook. Twilio is benefiting from an acceleration of projects tied to digital transformation in customer engagement. The company’s messaging capability is increasingly used to implement authorisations, notifications, and multi-factor authentication in security schemes. 

Other top active detractors included an underweight position in Alphabet (Google) and overweight positions in Lyft and Micron.

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 COVID-19 crisis will spur the use of technology and change how we live and work in the future.  Additionally, many businesses are struggling to find workers to meet customer demand and need technology solutions to improve productivity of limited staffs. As companies need to reduce costs and improve productivity, we expect to see accelerating demand for innovative 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.