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Why Allianz Technology Investment Trust has further growth potential


The growing popularity of technology stocks has provided a fillip for the Allianz Technology Investment Trust (LON:ATT) in recent years. It has delivered a 37% annualised return in the past five years versus a 15% compounded annual growth rate for the S&P 500.

The trust has also outperformed the majority of its peers. It is a top quartile performer in the past five years, with its 380% five-year return being significantly higher than the 293% return delivered by the Investment Trust Technology & Media benchmark.

This has more than fully offset a relatively volatile share price performance, as highlighted by the company’s Sharpe Ratio of 1.19 over the past three years. This represents top quartile performance versus its peers.

Why is Allianz Technology Investment trading at a discount?

Despite its strong performance, the trust currently trades at a 0.5% discount to its net asset value (NAV). An obvious reason for this is its recent disappointing performance, with its shares falling 13% in price in the past three months.

A shift from growth-oriented stocks to value opportunities contributed to its underperformance, while stock selection was also a significant detractor. For instance, an underweight position in Facebook and disappointing performances from holdings such as Crowdstrike held back its performance relative to the benchmark over the past few months.

Its recent share price decline could represent a buying opportunity on a long-term view. The prospects for many of the company’s holdings appear to be encouraging. A wide range of industries are becoming increasingly reliant on the use of new technology. The pandemic appears to have hastened this process, as firms seek to reduce costs through the use of automation and artificial intelligence.

Broad exposure to the technology sector

The Allianz Technology Investment Trust provides a broad exposure to the technology sector. It currently has 68 holdings that provide a substantial amount of diversification. They include household names such as Amazon and Microsoft among its top ten holdings. Around 88% of its holdings are listed in North America, which is unsurprising given the region’s dominance of the technology sector. It also has modest exposure to Asia, although the region counts for just 6% of its total assets.

The trust has a mid and large-cap tilt, as demonstrated by 36% of its holdings having market capitalisations in excess of $100bn. As such, one of the risks it faces are the rich valuations on which many large US technology companies currently trade. This may limit the trust’s prospects for material outperformance of the wider stock market in the short run; particularly if growth expectations are stifled by ongoing threats such as the pandemic and potential tax changes in the US.

Its ongoing charges figure (OCF) of 0.8% is in line with many of its sector peers. However, it charges a performance fee equivalent to 12.5% of the outperformance of the trust’s NAV compared to the indexed NAV. This is capped at a maximum of 2.25% of the trust’s NAV each year.

Despite this, the trust appears to offer a sound opportunity for capital growth in the long run. Its broad exposure to the US technology sector, strong track record of outperformance and modest discount to NAV suggest it has investment appeal. Its recent share price decline could present a buying opportunity.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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