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Buy long-term growth at a discount via Allianz Technology Trust

Allianz Technology Trust could provide a cheap entry point into tech stocks
Buy long-term growth at a discount via Allianz Technology Trust

The recent market volatility has included some sharp falls in the share prices of technology companies. But this doesn’t mean that there is anything fundamentally wrong with companies in this sector. “Facebook (US:FB), Apple (US:AAPL), Amazon (US:AMZN), Netflix (US:NFLX) and Alphabet (US:GOOGL) are down from their highs and the froth looks as though it has been blown off,” says Rupert Thompson, chief investment officer at wealth manager Kingswood. “While they may well remain volatile… the fundamentals behind the tech sector remain strong and valuations are once again looking more reasonable.”

IC TIP: Buy at 2340p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Unusually wide discount to NAV

Strong performance

Well positioned for growth

Experienced manager

Bear points

Performance fee

The pullback has also affected the valuations of funds that invest in technology stocks, so if you are a long-term growth investor with a high risk appetite this could be a good moment to add to one. Options include Allianz Technology Trust (ATT), which was trading at a discount to net asset value (NAV) of 5.8 per cent at close on 22 September – a good deal wider than the slight premiums or discounts it has typically traded at over the past few years. And when markets are calmer and sentiment is stronger, the discount could tighten again.

The trust has a strong performance record, with NAV total returns well ahead of Dow Jones World Technology index over both recent and longer-term periods, and other technology investment trusts. Its investment team is led by Walter Price, co-head of the AllianzGI global technology team, who has over 40 years’ experience of investing in technology. The team is based near Silicon Valley where many technology companies are headquartered.

Mr Price and his team try to identify major trends ahead of the crowd and invest in stocks with the potential to be tomorrow’s Apple, Google or Microsoft (US:MSFT). So the trust tends to be overweight high-growth mid-cap companies and underweight in mega-cap companies, relative to Dow Jones World Technology Index. Its managers look to invest in companies that are addressing major growth trends with innovation that replaces existing technology, or radically changes products and services and the way in which they are supplied to customers. So, although the trust invests in traditional telecommunications, media and technology companies, it also invests in non-traditional technology companies in various other industries that use technology in innovative ways to gain a strategic and competitive edge.

The trust’s returns have recently been boosted by exposure to companies benefiting from the shift to home working and increase in online activity as a result of the coronavirus pandemic. But the trust is positioned to benefit from growth well beyond the next few years.

“The present events around the Covid-19 crisis will spur the use of technology, and change how we live and work in the future,” says Mr Price. “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.”

There is no guarantee that the trust’s share price will do better and that the discount to NAV will tighten. Its share price could fall further and, as in past periods, it could trade at even wider discounts.

Allianz Technology Trust can charge a performance fee, which can make its ongoing charge considerably higher. For example, in 2018 this took its ongoing charge up from 0.91 per cent to 2.05 per cent.

However, in years when the performance fee is charged shareholders are compensated with strong returns. And the trust’s basic fee has recently been amended, meaning that shareholders could benefit if its share price does well. Prior to this year, it charged 0.8 per cent of market capitalisation up to £400m and 0.6 per cent on any market capitalisation above that. But, since January, the trust has charged 0.8 per cent for any market capitalisation up to £400m, 0.6 per cent for any market capitalisation between £400m and £1bn, and 0.5 per cent for any market capitalisation over £1bn.

The trust’s board, meanwhile, will consider buying back shares when the discount is wider than 7 per cent, which could help to limit how much it widens.

So if you are seeking growth over the long term and can tolerate volatility along the way, a small allocation to Allianz Technology Trust could be useful. And now could be a relatively cheap moment to add it. Buy. 

 

Allianz Technology Trust (ATT)
Price2340pGearing0%
AIC sectorTechnology & Media*NAV 2483.9p
Fund typeInvestment trust*Price discount to NAV5.80%
Market cap£956mOngoing charge0.92%*
No of holdings70**Yield0.00%
Set-up date01-Dec-95*More detailsallianztechnologytrust.com
Source: Winterflood as at 23 September 2020, *Association of Investment Companies (AIC), **Allianz Global Investors. 

 

Performance
Fund/benchmark1 year total return (%)3 year cumulative total return  (%)5 year cumulative total return  (%)
Allianz Technology Trust NAV55128315
Allianz Technology Trust share price41122311
Technology investment trusts average NAV3297244
Technology investment trusts average share price2886234
Dow Jones World Technology index4198257
Source: Winterflood as at 23 September 2020

 

Top 10 holdings (%)
Apple6.6
Amazon4.5
Facebook3.6
Tesla3.4
Zscaler3.0
CrowdStrike2.9
Paycom Software2.8
Square2.7
Twilio2.5
Samsung2.4
Source: Allianz Global Investors as at 31 August 2020

 

Sector break down (%)
Technology65.5
Industrials13.1
Consumer services 11.5
Consumer goods4.4
Financials1.5
Cash4
Source: Allianz Global Investors as at 31 August 2020