Allianz Technology Trust: why we’re underweight biggest tech stocks

Over the past 18 months, the world’s biggest technology stocks, the so-called Magnificent Seven, have seen their share prices sizzle.

However, fund manager Mike Seidenberg, of Allianz Technology Trust, holds less than the index in those companies. He tells ii’s Kyle Caldwell why he is “underweight” the big seven, why he urges every investor to have some exposure to technology, and explains how repurchasing Facebook-owner Meta Platforms paid off.

Mike also addresses recent performance, which in the trust’s latest financial year saw Allianz Technology slightly underperform its benchmark.

Other topics discussed include the artificial intelligence (AI) theme and the investment trust’s discount.

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Kyle Caldwell, collectives editor at interactive investor: Hello and welcome to our latest Insider Interview. Today in the studio I have with me Mike Seidenberg, manager of the Allianz Technology (LSE:ATT) investment trust. Mike, great to have you today. 

Mike Seidenberg, manager of Allianz Technology investment trust: Great to be here. 

Kyle Caldwell: You have a lot of exposure to the big US technology companies that have been immediate beneficiaries from a lot of excitement around the potential of artificial intelligence (AI). NVIDIA (NASDAQ:NVDA)’s your top holding. It’s had a very strong share price run since the start of 2023. So, what are your thoughts on prospects for Nvidia now, and what are your thoughts on its current valuation? 

Mike Seidenberg: Yeah, it’s a great question. So, Nvidia has been a nice contributor for the trust over the past year-plus and change. I think it’s important to note that as we sit here today we are actually underweight the benchmark. So, while albeit a large absolute position, from a relative perspective we’re actually underweight the benchmark.

I look at Nvidia and I look at a company that is really doing a great job of capturing lots and lots of workloads in the emerging artificial intelligence sector. I think I would probably be more comfortable buying it if [we were] just making it a larger position, if it were just a little more reasonable on the valuation side.

Having said that, the barriers to entry for a Nvidia, for competitors are very difficult. So, I like their competitive positioning. I like what the company does. I think that the software aspect of their business is probably under-appreciated by Wall Street. The stock is fairly richly valued, which is why currently, we are underweight the benchmark. If given the opportunity, we would probably add to it. But we will take our time. Here again, like most of our decisions, it all really boils down to risk/reward for us. 

Kyle Caldwell: As you’ve just mentioned, you are underweight, so you hold less than the index in a number of those US big technology companies. Is that a function of those companies just being too big in the index, or is it down to the fact that you’re finding better opportunities elsewhere? 

Mike Seidenberg: By the way, it’s definitely the right question. It’s been a huge headwind for us and I’m very proud of the team in our ability to basically capture performance elsewhere.

Our underweight is really driven by a couple of things. We have a very active board that is very cognisant of single-stock risk. I don’t think we’re ever going to be at some of the benchmark weights that are in the index. I’m not sure, as the lead portfolio manager, that I would ever be comfortable at those weights.

Therefore, our job, really, is to find companies that need to outperform these large benchmark weights. I’m not per se negative on The Magnificent Seven. Look, they’ve had an amazing run, and I think that generally speaking they’re really good businesses. Having said that, a lot of them to me look fairly valued, if not fully valued.

I continue to look for opportunities elsewhere, and we’re finding those opportunities. We found a number of them in the back half of 2023. Our process - something that we’ve kind of operated [by] since I’ve been with the trust, which is 2009 - usually leads us to finding opportunities that can replicate the type of outperformance that we’ve seen with those names. 

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Kyle Caldwell: In your last financial year to the end of 2023, the trust was up over 40%, but you did slightly underperform your benchmark. Was that because you’re underweight The Magnificent Seven? 

Mike Seidenberg: Well, look, I’m not going to make any excuses for our underperformance. I wish we’d outperformed and our job is to outperform for our investors. So, we did underperform modestly. Granted, the absolute performance was good, but nonetheless, it’s not because of The Magnificent Seven. It’s just that we as a team did not outperform the benchmark for a variety of reasons, some of which are probably attributed to The Magnificent Seven doing phenomenally well. But I take accountability and I don’t want to use that as an excuse.

Kyle Caldwell: For investors considering exposure to technology, could you make the case for active management over an investor choosing an index fund or an ETF? 

Mike Seidenberg: Generally speaking, there is a rate of change with technology investing that is fairly steep. If I’m an individual investor, I think that the risk associated with an index really is that you get caught having a large position in a legacy business that may not be and that may not perform as well as some other businesses.

I think the bigger message here to me and for investors is get exposure to technology somehow, some way. [This is] because the sector just affords itself so much opportunity over time to really not only change businesses, but solve difficult problems, which should, if all goes well, result in, technology doing well relative to other sectors with a multi-year time frame.

Obviously, I’m biased and I believe in active management. I think over time we’ve shown that active management is a good thing. But I really encourage investors one way, somehow, to get exposure to technology. Even if it isn’t through Alliance Technology trust. 

Kyle Caldwell: Artificial intelligence is a key theme for the investment trust. Could you name some lesser-known companies that are potentially going to benefit from that theme? 

Mike Seidenberg: A company such as Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), which is a semiconductor manufacturer. When you read articles, it is not something that really bubbles up to the top. But if you think about the whole semiconductor food chain, and how important that is to production of those chips, it is a really important food chain.

I think about where along the food chain the potential bottlenecks are, and what businesses can we own that really sit [in] that bottleneck that can create a lot of value for artificial intelligence chips. So, it’s not just a sole company that’s really driving this market. There are beneficiaries that are basically first and second derivatives. TSM is one of those, leading-edge semiconductor production is really important in that food chain.

Kyle Caldwell: And over the past 18 months on the back of technology’s strong performance, could you name a company or two that you still have exposure to that has performed very well? 

Mike Seidenberg: We still own Meta Platforms Inc Class A (NASDAQ:META). We bought it well, at the end of 2022. It’s a good example of a company where we knew it well. We were able to own it through a very good phase. We were able to (during the pandemic) exit it during a more challenging phase.

As we were doing some research, driven by Grassroots Research, which is an independent research organisation that does a lot of survey work for us that we augment our process with, we saw that they were doing better versus TikTok. I looked at the valuation and realised they didn’t have to do a lot of things right for people to care about the stock again. It allowed us to make it a fairly big position in the trust, and it’s something that we’ve owned, that we own today.

During the pandemic, we trimmed the position, although we didn’t sell enough, and then we bought it again when I thought it was too cheap, at the beginning of 2023. 

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Kyle Caldwell: You've been working and investing in technology for decades. Quite often there’s a lot of hype around certain technology sectors, and there’s a lot of hype around artificial intelligence at the moment. How do we know that the hype is real with this stock market theme? 

Mike Seidenberg: Wall Street tends to get too excited and too upset, and in between, there’s a lot of opportunity. One thing I remind myself when I think about investing in technology is really to stay disciplined and [ask] yourself: what is the risk/reward associated with that opportunity?

The hardest part of my job is seeing a stock go up that really isn’t a beneficiary, and in your example of artificial intelligence, there are lots of companies that are perceived beneficiaries that I really don’t think are beneficiaries.

So, I need to stay disciplined. The team is disciplined. We have a process. Hopefully we’ll continue to make good risk/reward decisions despite the euphoria or depression about a given sector. Hopefully we can make good decisions and find companies that can basically appreciate, and pass those results on to our investors. 

Kyle Caldwell: It’s been a good period for the investment trust. I think in your last financial year you’re up over 40%. However, the investment trust is still on a discount. Why do you think that is, and what do you think needs to happen for that discount to narrow? 

Mike Seidenberg: First, we have a really excellent board that really is cognisant of the relationship between the trust and the shareholders, making sure that we are active when needed regarding the discount when it becomes too wide.

From an operational perspective, I would love to tell you that’s my area of expertise around trust discounts. At the end of the day, my job and the team’s job is to deliver results, and I have a core belief that if I deliver results, if we deliver results over time, the discount will probably take care of itself on a multi-year basis. 

Kyle Caldwell: Finally, do you personally invest in Allianz Technology Trust? 

Mike Seidenberg: The answer here is a little bit complex. We are working on the ability to have me invest in Allianz Technology Trust. Currently, I am prohibited due to some kind of challenging esoteric US investment rules around the manager, but it is my goal to be an investor in the trust. 

Kyle Caldwell: Mike, thank you very much for your time today. 

Mike Seidenberg: It’s great being here. Appreciate the questions. 

Kyle Caldwell: That’s it for our latest Insider Interview. I hope you’ve enjoyed it. Please let us know what you think. You can like, comment, and for more videos, hit that subscribe button. Hopefully I’ll see you again next time.