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Allianz Technology hit by market rotation from growth to cyclical stocks

Allianz Technology hit by market rotation from growth to cyclical stocks – Allianz Technology (ATT) has posted its interim report for the six months to 30 June 2021. During the period, it achieved a 7% NAV increase though its share price was down by 0.8%. Meanwhile, the Dow Jones World Technology index was up 13.9%.

ATT’s share price moved from a 2% premium to NAV as at 31 December 2020 to a 5.5% discount to NAV by 30 June 2021.

Meanwhile, the board’s share split proposal, as set out earlier this year, was approved by shareholders in April and new ordinary shares began trading in May. The board announced in March that it was to undertake a share split of each of the company’s ordinary shares of 25p each into 10 ordinary shares of 2.5p each. For every ordinary share held immediately prior to the transaction, shareholders received 9 additional ordinary shares.

Extract from manager’s report;

Allianz Technology Trust underperformed the Dow Jones World Technology Index (sterling adjusted, total return) by 6.9 percentage points and the FTSE All-Share Index by 4.1 percentage points during the period. The portfolio’s underperformance has been largely due to the market rotation from growth to cyclical stocks. However, this rotation followed a period of very large outperformance for the portfolio in 2020.

Global equities rose over the first half of 2021 as the roll-out of Covid-19 vaccines boosted the outlook for a global economic recovery from the pandemic. US President Joe Biden’s plans for fiscal stimulus further bolstered sentiment although concerns grew about rising inflationary pressures. European equities were among the strongest performers as the reflation trade led to a rotation into cyclical companies out of some technology stocks. In addition, energy companies soared, as oil prices rallied on expectations of strong demand. Banks also rebounded as higher long-term bond yields lifted the outlook for their profit margins.

Economic news supported growing optimism over the global economic outlook, with several countries returning to pre-pandemic growth levels. The US economy was particularly strong, helped by massive fiscal support. In Europe, a further wave of infections dampened first-quarter growth, but economies bounced back in the second quarter as the roll-out of vaccines allowed restrictions to be eased. Rising inflationary pressures sparked speculation that central banks would start to scale back the extraordinary support measures implemented in 2020. In developed markets, central bankers indicated they were in no rush to change monetary policy as the recent increases in inflation were expected to be transient. However, some emerging markets took a different stance, with several increasing rates to counter rising inflationary pressures.

While value stocks outperformed growth stocks over the six months, the Fed’s more hawkish tone sparked a reversal of the reflation trade in June: technology companies returned to favour, while cyclical stocks, such as materials and industrials companies, lagged.

During the period, we reduced exposure to some high growth companies we felt would struggle to deliver enough earnings growth to justify high valuations. The team also increased exposure to some cyclical companies in the semiconductor, hardware, and travel segments. Despite the market rotation away from high growth stocks, many of these companies continue to demonstrate robust fundamentals with strong demand tailwinds. We continue to hold our positions in many high growth companies that we believe are well-positioned to maintain high growth rates. As a result, we have a barbell approach with exposure to both high growth and cyclical/value stocks.

As the world moves beyond the pandemic, we expect long lasting impacts to consumer behaviour and how companies serve their customers. Even prior to the onset of the pandemic there was an imperative for companies to digitally transform to better serve their customers. We believe the pandemic only accelerated this trend and that technology has become a critical piece for companies to operate more efficiently and to have ongoing engagement with their customers.

ATT : Allianz Technology hit by market rotation from growth to cyclical stocks

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