Allianz Technology stock selection delivers benchmark beat – In the 13 months to 31 December 2018, Allianz Technology Trust’s (ATT) NAV per share increased by 9.0%. The company’s benchmark index, the Dow Jones World Technology Index (sterling adjusted, total return), increased by 0.1% over the same period.
More volatility around tech
For the technology sector, there was a notable difference between its performance pre-October 2018 and post-October 2018. Before October, technology companies had led the S&P 500 to its longest-ever bull run. There were hints of the problems to come – Facebook’s data privacy issues, for example – but companies kept delivering on high earnings expectations and they appeared to be a bright spot for growth.
The catalyst for the sharp reversal was not entirely clear. However, it was sudden and dramatic. Over the month of October, the Nasdaq dropped from 8,025 (3 October) to 7,050 (29 October) – a 12% fall. By 24 December, it was another 12% lower at 6,192.3 With hindsight, the deciding factor appeared to be the weakness in China. Chinese demand is an important source of growth for technology companies and earnings suffered as the US/China trade war hurt Chinese consumer sentiment. This impacted certain sectors more than others. In particular, hardware and semiconductor names saw a rapid sell-off. Robotics names also suffered.
Rising US interest rates also contributed. In raising the discount rate, technology valuations needed to undergo some reappraisal. Future growth was no longer as valuable, and this saw some of the highest growth technology names marked lower.
Portfolio analysis
The manager’s report details which stocks had the greatest impact on returns within the ATT portfolio. Amazon and Square were the two stand-out performers over the period. Amazon proved more resilient than a number of the other FAANG (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) stocks. It has continued to grow its earnings, although third-quarter sales and its forecast for fourth quarter sales missed analyst estimates; it could not prove entirely immune to the weakness in consumer spending.
There were also companies where ATT benefited from holding a low weighting. The most important of these was Facebook. The company had a difficult year and has struggled since the start of the year over privacy issues.
International holdings
It was a tough period for some non-US names, particularly some of the large Chinese technology groups. Emerging markets in general were out of favour, and China in particular, as the trade war took its toll. ATT’s low weighting in Tencent and Alibaba helped performance over the year with both companies losing ground over the year. Asia accounts for 1.2% of a portfolio that is heavily weighted to Silicon Valley.
ATT : Allianz Technology stock selection delivers benchmark beat