Allianz Technology upbeat on security and disk drive companies

The trust's manager, Walter Price, says: "Many of the mid-caps I have stuck with have gone through a period of consolidation because the market has had more of an earnings focus," he says. "However, the ones I own are talking of accelerating earnings growth and their costs are down which should lead to better share price performance. The companies are also experiencing continued strong growth in their businesses."

At 7.5 per cent of the portfolio Mr Price is under-exposed to Apple (US: AAPL), which represents 13.7 per cent of his benchmark and has performed really well this year. The portfolio has also suffered from dollar weakness against sterling - many tech companies operate in this currency.

"The fund has a bias towards high growth, high multiple companies and this, combined with the relatively higher portfolio concentration, means it has a higher volatility than its peers," comment analysts at Winterflood. "However, we believe the manager's unconstrained approach and bias towards mid-sized companies will lead to outperformance over the longer-term."

Mr Price expects his holdings and tech companies more generally to show a lot of earnings growth in 2015. However, he has looked to reduce risk. Around a year ago a number of the high growth stocks the trust held were sold because they had reached price targets, and this was put into more stable companies such as Microsoft and Apple.

"In March this year and more recently we sold companies where profitability looks like it is going to be further out, as well as selling some shares just to concentrate our portfolio," he adds. "We have sold around 15 this year."

eHealth (US: EHTH), which operates websites that provide rate quotes and comparisons of health insurance plans in the United States was one of the main detractors to performance during the six months to 31 May. "We remain constructive on eHealth over the near-term but did trim our position to reduce risk," says Mr Price. "Over the longer-term, we think eHealth can grow its top-line considerably on the prospect of higher volumes.

We have also sold some of our Chinese internet stocks such as Chibu and internet TV company Youku Tudou, as the latter was not making much money. And we sold Amazon."

Search engine Yandex was sold because Russian shares have fallen due to tensions over issues such as Ukraine.

Going ahead Mr Price will consider his holdings in semi conductor companies, which have had inventory problems so that "some have been hit pretty hard."

Disk drive companies have also been hit. "But there has been a transition so that there are fewer competitors and more focus on profit than revenue," he says. "The main thing is that they sell into industries which are growing. These companies have gone through a revaluation and earnings have grown so it is not the end. Strong demand in the solid state drive segment has been brought on by rapid expansion of data centres used to deliver Cloud services. Today, some of the most cutting-edge storage solutions used in data centres are built with flash memory. We think that new smartphone builds, stabilising PC demand, and the longer-term shift toward more advanced memory products will help maintain the favourable industry dynamics."

The trust's top 10 holdings feature three disk drive companies: Sandisk (US: SNDK), Western Digital (US: EDC) and Micron Technology (US: MU).

Mr Price also likes include companies involved in online security, and has been putting money into companies such as Palo Alto Networks (US: PANW). Palo's hardware firewall products are able to enforce security policies across an enterprise's network at the application, user, and content-level. "Palo Alto Networks offers a best-in-class product suite within this area," says Mr Price. "The internet economy is in crisis from security attacks, so there is a need to do things such as encrypt data and separate networks to create a really secure infrastructure."

As a result he expects companies to increase their budgets for online security.

When looking for potential investments Mr Price tries to find the market leader within the sub segments of technology sectors. "The leader tends to gain share over time," he says.

For this reason he typically looks for companies with a market cap of $1bn or more. "Smaller companies have to compete with and keep up with the leader," he says. "They don't have the management resources. I want lots of leaders so the market caps of my holdings tend to be a bit higher. These also have the potential to grow into large-caps whereas many smaller companies stay small and have a higher mortality rate. Leaders tend to be much more durable and become large in a lot of cases."

He tends to choose companies according to their individual attributes rather than sector or industry, but, for example, the risk on/risk off analysis he and his team conducted earlier this year made them rotate money into large-caps such as Microsoft (US: MSFT).

"Some of these are priced as if there is no growth, and in some cases as if they are going out of business, so are worth looking at," he explains.

He feels large-caps offer value with Apple and Microsoft still reasonable. "These are not high growth but they are cheap," he says. "They have been trading lower than the market multiple but the outlook is better for them than for the wider market over the next three years."

Allianz Technology Trust had an ongoing charge plus performance fee of 6.67 per cent at the end of November, according to Morningstar data. This was in part due to good performance in its year to 30 November. But the trust's board has now reduced the annual management fee from 1 per cent to 0.8 per cent of net assets a year, and capped the performance fee at 2.25 per cent, and expects the ongoing charge from 1 December 2013 to be reduced.

Source: Morningstar & *Allianz

Source: Winterflood as at 28 October

Top 10 holdings, as at 31 August 2014

Sector breakdown