Big technology stocks have dominated growth for more than a decade yet one of the valuable lessons to come out of recent DeepSeek developments is that financial markets are not a one-way street, and key tech stocks don’t always go up.
Less experienced investors may not realise it, but such shake-outs are not rare, and volatility is built into the technology industry. Never has life been so disrupted and change come as thick and fast as it has today, and rapid technological development sits right at the centre of this transformation, a crucial factor for all investors to mull.
Shares believes avoiding the tech space entirely is not a sensible response for most investors, as it means missing out on a sector chock-full of companies with large and sustainable competitive advantages, pricing power and strong cash flows in markets where there are long runways for future growth.
Seeking out help from deep pools of expertise and experience that are available definitely is sensible though, which is why we believe now could turn out to be a fantastic opportunity to invest in Allianz Technology Trust (ATT), run by one of the sharpest tech investment teams around in our opinion.
Led by Mike Seidenberg for the past couple of years, he was predecessor Walter Price’s right-hand man for several years before that, a period during which the trust established a strong reputation as a tech investor, and the simple remit remains: get the best possible bang-for-buck shareholder returns over a medium-term time frame, usually assessed as at least five years.
The portfolio contains many familiar tech names – Nvidia (NVDA:NASDAQ), Microsoft (MSFT:NASDAQ), Meta Platforms (META:NASDAQ), Amazon (AMZN:NASDAQ), Broadcom (AVGO:NASDAQ), Palantir Technologies (PLTR:NASDAQ) – so why not just buy a simple S&P 500 tracker?
It’s a good question, one answered in two parts. First, concentration: the portfolio typically has somewhere between 35 and 50 companies (currently 45), designed to exclude less attractive investments.
Second, the trust’s ability to go overweight or underweight versus a benchmark, as illustrated by the Vanguard S&P 500 ETF (VUSA), say (see table), allowing the trust to make bigger than benchmark bets where its conviction is highest.
Crucially, Seidenberg operates what might be called an ‘anti-geek’ policy, frequently reminding his team that their job is not to identify the best or most exciting technologies but to focus on the best opportunities to monetise technology developments for the benefit of shareholders, be it in AI, cloud, chip design, cybersecurity or whatever.
An example Seidenberg has explained to Shares in the past is that new generative AI features will let businesses craft sales pitches using Salesforce (CRM:NYSE), summarise your employees’ skills in Workday (WDAY:NASDAQ), create images from prompts in Adobe’s (ADBE:NASDAQ) Photoshop and automatically draft responses to IT requests in ServiceNow (NOW:NYSE).
We might not be there yet, but these are the types of companies, with clear routes to generating new revenues and cash flows, which investors should be thinking about, the fund manager says. ‘Ultimately, if a business doesn’t create superior cash flows and scale, it’s not a very interesting business to us,’ says Seidenberg.
Many investors think technology stocks are expensive, yet this is sector where investors are most likely to find sustainably above average growth so there is a clear play-off. The Allianz Tech Trust has a long-proven track record for navigating these factors, and it shines through in performance.
A decade seems like a reasonable horizon to judge a fund through the vagaries of a cycle (booming markets, Covid, inflation spikes, interest rate rises), and the trust has produced an average annualised total return of 22.6% over 10 years while the Vanguard S&P 500 ETF has generated a 15.2% annual return.
Put another way, if that performance was repeated over the next decade, for every £1,000 invested in the Allianz Tech Trust investors would have £7,672 by 2035, versus £4,120 for the ETF.
To us, this outperformance and wider-than-average discount to net asset value (8.7% versus 7.7%) justifies the trust’s 0.8% annual charges.
DISCLAIMER: The author of this article (Steven Frazer) owns shares in Allianz Technology Trust.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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