Allianz Technology just failed to match the performance of the Dow Jones World technology Index over the six months ending 31 May 2015 – its net asset value rose by 6.6% against 6.8% for the index. The discount narrowed though and that meant that shareholders saw an 8.3% uplift in the ordinary share price.
The manager says good performance came from security and cloud computing stocks and mentions that Palo Alto Networks and FireEye have been among the top performers for the fund in security and ServiceNow, Amazon, and Microsoft were beneficiaries of the growth of cloud computing although they were underweight Microsoft and this held back their return relative to the index.
Palo Alto Networks was among the top relative contributors for the period. The company delivered earnings results and forward guidance that topped high expectations. Management cited broad-based strength across all geographies and product offerings as the security spending environment remains robust. The manager says the company continues to demonstrate an ability to produce strong revenue growth and accelerate profits ahead of expectations. Looking ahead, Palo Alto Networks has multiple drivers in place that are expected to propel significant long-term growth. Improving sales productivity, a broadening product portfolio, and a growing customer base with increasing adoption of subscription solutions should drive revenue growth. At the same time, operating margins should continue to move higher as a result of increased efficiencies and a higher percentage of sales from a more profitable renewal base. The combination of strong billings growth and improving margins are expected to produce significant free cash flow growth over the next few years.
Freescale Semiconductor was also among the top relative contributors for the period. Shares rallied after NXP Semiconductors announced plans to acquire Freescale for about $11.8 billion in cash and stock. The merger combines two complementary businesses and should lead to significant cost synergies and drive higher growth over time. The move will expand the combined company’s market share in attractive semiconductor markets such as automotive, industrial, and secured connected devices. Specifically within the automotive market, both companies are major suppliers of chips for use in cars and are seeking to benefit as vehicle technology becomes more advanced. We see the combined company as an increasingly strong competitor in a high growth and evolving area in secured, connected enabling technology.
Amazon.com was a top performer, as the company delivered solid results that topped expectations despite a large foreign exchange loss. Amazon is finally showing an ability to gain operating leverage after its many investments in recent years. A notable bright spot was the company’s cloud business, Amazon Web Services (AWS), which is growing faster than investors expected. For the first time, Amazon broke out sales from its cloud computing division, reporting a 49 percent jump last quarter. With management’s commitment to more disciplined capital allocation and the early success of AWS, they believe Amazon could produce very attractive profit growth over time.
The key detractors to the Company’s performance during the period were our holdings in Alibaba, SanDisk, and our underweight position in Microsoft.
While they like the long-term prospects for Alibaba, short-term headwinds have weighed on the stock’s performance. First, there was rhetoric from the Chinese government about Alibaba selling fake products on its website. Secondly, the rate of monetisation on its mobile traffic has been lower than they expected. However, they believe the company’s long-term positioning and its strong business model should outweigh the negative sentiment over time.
SanDisk declined after management announced it is lowering the March quarter outlook and withdrawing their prior fiscal 2015 outlook. The company attributed the revised forecasts to product qualification delays, enterprise solid state drive (SSD) sales weakness, and lower pricing in certain products. The company appears to be suffering from the weakness in the hardware industry and they expect this headwind to persist for an extended period.
ATT : Allianz Technology helped by narrowing discount