Portfolio Overview

The Allianz Technology Trust returned 5.3% in April, underperforming the Dow Jones World Technology Index return of 5.6% GBP. During the month, stock selection and industry allocation detracted from relative performance.

Our position in Okta was a top relative contributor during the period. The company’s most recent quarterly financial results beat expectations for revenue and earnings per share (EPS). Revenue grew 40% year-on-year and total billings grew 40.5% year-on-year. Okta saw a continuation of strong demand as identity access management benefits from a number of trends such as the shift to cloud/hybrid environments, zero trust, and digital transformation. Large deal activity was again strong, with 170 new customers added with an average contract value (ACV) greater than $100,000. The company also recently announced a large acquisition, as it intends to acquire private competitor Auth0 for $6.5 billion in an all-stock transaction. The rationale for the acquisition is that Auth0 will accelerate Okta’s growth in the critical consumer identity access market, with Auth0’s solution largely complementary to Okta’s. Auth0 focuses on the DevOps arena and developers with limited overlap in terms of capabilities of the solutions. We believe the company is on a multiyear journey benefiting from massive tailwinds such as zero trust, digital transformation, and cloud transition.

Our position in CrowdStrike was also a top relative contributor during the period. The company’s Q4 results were robust 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 obligation (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.

Other top active contributors included overweight positions in Seagate and Amazon.com and not owning Intel.

Our position in memory chip supplier, Micron, was a top relative detractor during the period as the outlook for the semiconductor industry was tempered with supply constraints limiting companies’ ability to meet healthy demand. Micron reported quarterly revenue and margins that beat expectations driven by above-seasonal demand in mobile, PC, and automotive, along with recovering enterprise/cloud demand. Management believes the dynamic random access memory (DRAM) market is currently facing a severe shortage and will remain undersupplied in 2021 because of strong demand prospects and disciplined capex investment in 2020. We maintain a constructive view of Micron’s prospects amid a host of new applications such as data center servers, 5G infrastructure, smartphones, and automotive end markets. We believe the company remains well positioned to benefit from industry supply discipline and long-term demand trends in mobile and cloud computing.

Our position in ride-sharing company Lyft was also a top relative detractor. Shares came under pressure after the US Labor Secretary indicated to reporters that he thought many “gig” workers should be classified as full-time employees. Such a move would change the financial model of Lyft and other gig economy companies likely yielding a long-term model that is ultimately less profitable. While this employee classification issue is a concern longer-term, we do not believe such a change is imminent. However, other labor issues do remain a concern as Lyft and its peers are facing challenges in the US finding a sufficient supply of drivers and are having to pay greater incentives to get people to drive. Despite these headwinds, we believe Lyft remains well positioned to benefit from the ongoing economic recovery and the increase in travel as pandemic restrictions are lifted.

Other top active detractors included a net underweight in Alphabet and overweight positions in Infineon Technologies and Flex.

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.