Allianz Technology keeps pace despite Mag 7 underweight

Throughout the year (to 31 December 2024), Allianz Technology Trust Ord (LSE:ATT’s portfolio effectively kept pace with the benchmark, returning 35.6% on a net asset value (NAV) basis (just 0.2% less than benchmark), and 38.1% on a share price total return basis as the discount narrowed a few percentage points. Its benchmark is the Dow Jones World Technology Index.

• Invest with ii: Trade Investment Trusts | Cashback Offers | Open a Trading Account

Returns were supported by a second strong year of returns for tech stocks. Relative contribution came from an overweight position in software companies, as well as from names less represented in the benchmark, such as Broadcom Inc (NASDAQ:AVGO), or not included at all - Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM). Weaker than expected outlooks and/or stock-specific issues led to MongoDB Inc Class A (NASDAQ:MDB), Zscaler Inc (NASDAQ:ZS) and Snowflake Inc Ordinary Shares - Class A (NYSE:SNOW) detracting.

The number in detail (for financial year to 31 December 2024)

Net Asset Value (NAV) Return: +35.6%
Share Price Total Return: +38.1%
Benchmark Return: +35.8%
Discount: -8.6% (vs -10.3% in prior year)
Full-Year Dividend: Nil (no change)
Net Gearing: Nil

Outlook

Manager Michael Seidenberg is optimistic regarding the potential of future technologies within space exploration, augmented reality and quantum computing. He views that in the near term, a continued momentum for artificial intelligence (AI) and digitalisation and a trend towards deregulation and M&A should be positive for the sector.

However, both the manager and chair temper their optimism, noting the volatility that Donald Trump’s new administration may bring, as well as being wary of valuations that are overstretched.

Discount

The trust’s discount during the year narrowed from just over -10% to -8.6%. The board initiated a small number of buybacks throughout the year. While in years prior to 2020 the trust has traded at a premium, it has more recently (mirroring the wider investment trust universe) fallen to a discount, which has been broadly in line with its one close peer, Polar Capital Technology Ord (LSE:PCT).

Portfolio

In light of the narrowness of performance throughout the past two years, the 45-stock portfolio stands at historic levels of concentration, with the top 10 companies comprising near 58% of the portfolio at year end. While six of the Magnificent Seven are well represented in the top stocks, there are less familiar names and regions beyond the US.

New additions to the portfolio include: Atlassian Corp A (NASDAQ:TEAM), a designer of project management software; Toast Inc Class A (NYSE:TOST), a creator of restaurant-management software, and Marvell Technology Inc (NASDAQ:MRVL), a semiconductor producer that is gaining traction.

• ISA fund ideas for investors looking to add spice to portfolios
• US and UK stocks react to latest US inflation data

New addition to the S&P 500 Palantir Technologies Inc Ordinary Shares - Class A (NASDAQ:PLTR), which is a leader in the realm of big data and analytics, was also added to the portfolio in August 2024.

At a thematic level, identifying profitable winners within the realm of AI remains a “headline” within the portfolio, although the rise of cybersecurity technology, cloud computing, the Internet of Things and 5G are also cited as just some areas of focus for the manager.

Gearing

The trust did not employ gearing during the period.

Dividend

ATT does not currently pay a dividend.

ii View:

ATT’s strong absolute performance in 2024 was one of the very best performances of an equity investment trust throughout 2024 (even despite its lack of gearing). Relative performance was in line with the benchmark, or just above on a share price basis.

While much of the benchmark performance (and wider global equity returns) were due to giant-cap Magnificent Seven stocks, some small broadening of returns within the sector allowed ATT to keep pace with the index while diversifying into other opportunities beyond these AI leaders.

Still, ATT has faced a significant challenge of recent times – to outperform a strongly performing index that has been mostly fronted and driven by the select group of large companies – namely the Magnificent Seven. To be overweight these companies would be to levy a large amount of concentration risk, as well as failing to represent the opportunities across the tech sector’s breadth of themes. However, the strong performance of these stocks has meant that being underweight risks underperformance.  

Overall, ATT is underweighting the Magnificent Seven versus the benchmark. Microsoft Corp (NASDAQ:MSFT) is a notable underweight, with ATT holding 8.2% versus 14.6% for the benchmark.

Recognising this market leadership, ATT has consciously increased its allocation to mega-caps, although the portfolio has still typically held slightly underweight positions to avoid excessive concentration risk. This current concentration ties the trust’s performance in the near term to the fate of these few companies. However, if we have reached the apogee of the Magnificent Seven’s rise, Seidenberg has stated his readiness to redistribute this capital among even more opportunities.

• Ian Cowie: my forever fund went up despite tech wobble
• Where the pros are investing beyond the Magnificent Seven

Already towards the end of 2024, and particularly as 2025 progresses, I believe we’re seeing the potential over the long term of ATT’s active approach. While the Magnificent Seven are a fantastic set of businesses and their financial results in January 2025 broadly showed continuing operational and financial strength, there was some faltering to speak of.

In 2024, Microsoft’s earnings were robust, but a weaker forward guidance meant that ATT’s underweight positioning actually benefited the trust’s relative performance versus the benchmark.

Elsewhere, NVIDIA Corp (NASDAQ:NVDA)’s undeniably impressive revenue and earnings growth were met with a short-term fall in the share price as investors questioned not the product or strategy, but the remaining upside in the share price (at that time).

The manager’s job is not just to identify cutting-edge themes and products, but to analyse how successfully these concepts can translate to the tangible aspects for shareholders, such as market share, revenue/profit growth and, ultimately, changes in share prices over the long term.

Fundamentals may feel inconsequential at this current moment when, in the past week, the tech sector has been indiscriminately routed in the immediate wake of Trump’s imposition of tariffs, with virtually all tech stock – large, mid and small – caught up in the March sell-off. However, history teaches us that, over the long term, the greatest driver of increasing share prices is a company’s earnings growth, helping us look past short-term price volatility.

As Trump’s tariffs have sparked a rotation of the market thus far in 2025, we are already seeing a markedly different distribution of returns across technology stocks as well as in other sectors, with the Magnificent Seven (other than Meta Platforms Inc Class A (NASDAQ:META)) so far failing to provide any resilience, while other areas of the market have held up better.

ATT has a similar risk level to its benchmark and closest peer, Polar Capital Technology. However, over the long term, a continued broadening of market returns could benefit ATT’s active approach and ability to be flexible in allocating based on the scale of the long-term opportunity ahead, not simply by market capitalisation.

Please note that Allianz Technology Trust does not feature as part of ii’s Super 60 or ACE 40 Rated Lists.