31 July 2023
ALLIANZ TECHNOLOGY TRUST PLC
HALF-YEARLY FINANCIAL REPORT
For the six months ended 30 June 2023
HIGHLIGHTS
| 30 June2023 | 31 December 2022 | %Change | |
| Net Asset Value per Ordinary Share | 299.7p | 231.0p | +29.7 |
| Ordinary Share Price | 262.0p | 210.0p | +24.8 |
| Dow Jones World Technology Index (sterling adjusted, total return) | 2,437.4 | 1,832.2 | +33.0 |
| Shareholders’ Funds | £1,188.0m | £938.9m | +26.5 |
| Discount of Ordinary Share Price to Net Asset Value | 12.6% | 9.1% |
Interim Management Report
Chairman’s Statement
Harsh economic and geopolitical realities
This marks my first interim report since taking over the role of Chairman of Allianz Technology Trust PLC. I am excited by this new role and the opportunities that lie ahead for the Company. I must take this opportunity to pass on my thanks, from the Board and on behalf of ATT shareholders past and present, to my predecessor, Robert Jeens for his commitment and strong leadership as Chairman of the Company.
Although we will reflect on a period which has seen some incredible advancements for society, there are unfortunately also negative factors offsetting these developments. Despite technological progress, mankind continues in some quarters to display the worst of its attributes and we cannot ignore the passing of another period where we must acknowledge the ongoing war in Ukraine, with both its human cost and its impact on the global economy and geopolitical landscape.
Performance
2023 started as 2022 had left off. The trend of seemingly runaway inflation followed by aggressive interest rate rises that started as we exited the pandemic and was then given further impetus by the war in Europe, did not abate. Glimmers of hope however seemed on occasion to signal we may be somewhere near a peak. While some factors such as the oil price have rolled over, core inflation has remained stubbornly high. This has continued to strain the valuations of growth companies with both their future cash flows continuing to look mathematically less attractive, as well as their business wings being clipped as access to cheap money has been curtailed.
Ultimately though, there were sufficient positive signals through the period to buoy investor sentiment enough to rally global equities off the 2022 lows. The most positive sector in the first half of the year though was, of course, artificial intelligence (AI). This spurred the tech sector in a way not seen for many months with bedrock companies like Nvidia, a key beneficiary of the theme, seeing its valuation rocket. Whether this theme sustains is to be seen, but it gave something of a boost across many areas of tech. However, as our lead portfolio manager has noted, “a rising tide is unlikely to lift all boats” in this new world, with investors needing to be discriminating in their stock choices.
Against this ‘tale of two halves’ backdrop, I can report that performance for the period was strongly positive in an absolute sense although negative relative to the Company’s reference benchmark. The Company’s NAV for the six months to 30 June 2023 rose by 29.7% (2022: -22.7%) compared to the 33.0% return from the benchmark.
The shortfall in performance compared to the index is examined in the Investment Manager’s Review below, but one of the main factors continues to be quite deliberate underweights to some of the largest capitalisation stocks which dominate the index and which performed well over the period. Despite this shorter-term shortfall we retain our long-held conviction that the Company should not chase benchmark-like weights in the largest stocks. Whilst holding inflated weights in those stocks may give some short-term performance benefits, we do not view it as appropriate in risk terms to hold such concentrations. In addition, our portfolio managers remain of the view that, whilst the mega-caps are largely great companies, the greater long-term growth story resides further down the market capitalisation scale with mid- and large-caps. This has been a point of differentiation for the Company for many years and continues to be a focus, now and into the future.
Given the nature of the Company’s investments and its stated investment objective to achieve capital growth, no dividend is proposed in respect of the current period and the Board considers it unlikely that any dividend will be declared in the near future.
AI
We are already beyond the generally high trajectory of technological advancement we have been witnessing over the past decades, with the development and impact of generative artificial intelligence.
Generative AI refers to artificial intelligence algorithms that can generate written content, images, computer code, and even speech. At a US congressional hearing earlier this year into the potential social impacts of this new technology, one speaker had ‘recorded’ a speech – except, although it sounded just like him in every way, it certainly wasn’t. An AI algorithm had instead given its ‘view’ – in his voice!
It would be possible to spend a significant amount of time debating AI with multiple different lenses, including morality, ethics, and human advancement. Ultimately though, the power of AI seems really to lie not in the ability to let someone (thing?) else write your next report, but in the largely unseen applications where algorithms are already crunching almost unfathomable amounts of data. They are doing this infinitely faster than we could as human beings and therefore are able to make faster advancements, for example in the development of new medicines.
As with any ‘theme’, there are companies that represent the area as their more-or-less sole focus, as well as companies where they may be more of a beneficiary as a key supplier. Nvidia – a key talking point of the period – falls into this latter category. AI is exciting in terms of what it could achieve, but that will require the right infrastructure to be in place to support the massive computer and storage requirements. Our portfolio managers currently see more potential in this latter type of company, rather than a ‘pure-play’. That being said, we also note the predominance of AI related activities starting to take larger shares across many companies, with Microsoft being a key example. Recently Winterflood Research curated an ‘indicative and non-exhaustive’ list of 18 underlying companies set to benefit from generative artificial intelligence and the AIC examined which member companies had the greatest exposure. The Company topped this list with, at the time, exposure to 13 of them, representing over 37% of the portfolio. The Winterflood list included semiconductor companies (Nvidia, Taiwan Semiconductor Manufacturing, ASML, AMD, Applied Materials and Intel); search companies (Alphabet, Microsoft and Baidu); enterprise and productivity software companies (Salesforce, Workday, HubSpot, SAP and ServiceNow); and companies offering cloud computing (Amazon, IBM, Oracle and Cisco).
Whilst this is currently a positive aspect for the Company, the Board is acutely aware of both shareholder and wider market concerns over the potential for AI to represent an ESG risk factor, particularly from the ‘Social’ angle. To that end we are engaging with our lead portfolio manager to understand a range of views and perspectives on this matter and will ensure that this continues to be appropriately considered from a risk perspective.
Discount/Buybacks
Over the period our discount to NAV remained elevated, particularly in the context of a longer-term picture where we traded closer to par and often at a small premium when demand for technology stocks was high.
Some factors driving the current discount are outside our control and affect many more companies than ourselves. In particular, continued uncertainty for investors is seeing the closed end fund sector in general at a higher average discount than has been typical over recent years. Notwithstanding the boost to tech shares over recent months, investors perhaps remain unsure of the outlook for interest rates and are consequently cautious.
The Board continues to pay close attention to the level of discount and, through the Company’s broker, have been active in buying back shares. Over the period 10,052,149 shares were bought back at an average discount of 11.8%. Since the period end on 30 June 2023, a further 801,500 shares have been bought back. All shares repurchased are held in treasury rather than cancelled so that they may be reissued if sufficient demand arises.
Consumer Duty
The Board has worked with Allianz Global Investors, UK Limited (‘AllianzGI UK’), our AIFM, to ensure all obligations under the FCA’s new Consumer Duty regulations have been appropriately considered and applied to the Company. All communications including the website, factsheets and other published documentation, have been reviewed to ensure they are appropriate for consumers. A ‘value assessment’ has also been undertaken and it was concluded that the Company provides fair value. The value assessment is made available to distributors such as investment platforms and wealth managers to inform their own due diligence.
Portfolio management team
This report marks a year since Mike Seidenberg took over the lead portfolio manager role on 1 July 2022. Within that period, Mike has been diligently executing the ‘day job’ against a sometimes unforgiving backdrop, whilst also getting to grips with the additional responsibilities that come with the lead role – such as responding to press enquiries, particularly during the height of the ChatGPT euphoria and interest. We thank Mike for his first year fully established at the helm of the Company’s portfolio management.
Investment management corporate changes
As outlined in the Company’s Annual Financial Report, our contract with Allianz Global Investors GmbH, UK Branch as AIFM of the Company transferred during the period to AllianzGI UK which is a new FCA authorised and regulated UK entity taking on all activities of the former UK Branch of AllianzGI GmbH.
Annual General Meeting (‘AGM’)
It was a pleasure to meet many shareholders at the Company’s AGM on 26 April 2023. The Board once again put in place arrangements for shareholders to attend the AGM electronically if they could not attend in person, as well as being able to ask questions. All resolutions were passed. A recording of the AGM, including a presentation from the lead portfolio manager, Mike Seidenberg, can be found on the company’s website.
We would also remind shareholders that the key elements of this year’s Annual Financial Report were made available in an updated online format (the ‘Annual Stakeholder Report’) at tinyurl.com/ATT-stakeholderreport-22.
Outlook
As has so often been the case in recent years, the only certainty from a macroeconomic perspective seems to be uncertainty. In the US as with much of the rest of the world, the outlook for inflation is undoubtedly the key influence on the general direction of markets. Some confidence of an approaching peak has already been priced in, spurring markets, but any more certainty backed by positive action from the US Federal Reserve and other central banks would be a further catalyst.
That of course is a driver for overall market confidence, but we must also examine what might drive the sector. Beyond interest rates, where a reversal of recent rises would give a mathematical boost to growth stocks, there are the secular growth trends to consider. These are identified by our lead portfolio manager in his report, as well as regularly being discussed on our podcast and in interviews and webinars that the manager participates in.
Ultimately, despite the macroeconomic backdrop, our portfolio manager continues to follow a bottom-up stock picking approach. Regardless of the shorter term direction of markets or how the global economy performs, there remain some fantastic long term growth companies in the technology sector (with more emerging over time), and our lead portfolio manager and his team are deftly uncovering many of them.
Principal risks and uncertainties for the remainder of the financial year
The principal risks and uncertainties facing the Company are broadly unchanged from those described in the annual financial report for the year ended 31 December 2022. These are set out in the Strategic Report on pages 20 to 21 of that report, together with commentary on the Board’s approach to mitigating the risks and uncertainties. Given the global macroeconomic and geopolitical backdrop, market risk remains front of mind and the Board, AIFM and Investment Manager continue to monitor the situation carefully.
The Board performs a high-level review of the principal risks at every meeting to ensure that the risk
assessment is current and relevant, adjusting mitigating factors and procedures as appropriate.
Keeping in touch
Shareholders are reminded that the Company’s website www.allianztechnologytrust.com is the ‘go-to’ destination for the very latest news, views and broadcast content relating to the Company. We continue to offer an ongoing email communications programme distributing monthly factsheets, insights and other occasional Company updates to all those who opt in to receive them. If you would enjoy receiving these targeted communications, you can sign up easily via the Company’s website.
Going concern
The Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities that are readily realisable, and the Company’s assets are significantly greater than its liabilities. The Directors have assessed the impact of the change in investment management arrangements and the continued operational resilience of the Company’s service providers and have concluded that the Company has adequate financial resources to continue in operational existence for twelve months after approval of these financial statements.
The Company is subject to a continuation vote of the Shareholders every five years. The last continuation vote was put to Shareholders at the AGM in 2021.
Related party transactions
Note 15 of the Company’s 2022 Annual Financial Report gives details of related party transactions and transactions with the AIFM and Investment Manager. The basis for these has not changed during the six months under review. This report is available on the Company’s website at www.allianztechnologytrust.com
Responsibility statement
The Directors confirm to the best of their knowledge that:
– the condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with FRS 102 and FRS 104, as set out in Note 1 and the Accounting Standards Board’s Statement: ‘Half-Yearly Financial Reports’;
– the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7 R, of important events that have occurred during the first six months of the financial year, their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
– the interim management report includes a fair review of the information concerning related party transactions as required by Disclosure and Transparency Rule 4.2.8 R. The half-yearly financial report was approved by the Board on 31 July 2023 and signed on its behalf by the Chairman.
Tim Scholefield
Chairman
31 July 2023