As the graph below shows, some parts of the technology industry experienced a very strong 2014. The MSCI World Technology & Equipment index, for example, was up 31.03 per cent against an 11.46 per cent gain in the wider MSCI World. Not all parts of the tech world surged, however, with the MSCI World Telecommunications Services index rising just 4.19 per cent over the year.
Performance of indices in 2014
Source: FE Analytics
Price, manager of Allianz Technology investment trust, says the IPO of Chinese e-commerce company Alibaba, which raised £25bn on the New York Stock Exchange, can safely take the title of “the most significant technology event of the year”.
While the size of the deal alone would have made it noteworthy, the manager says the real significance was that it showed the continued globalisation of technology and demonstrated that an emerging market-domiciled company could compete on equal terms with its international rivals.
When highlighting trends the tech investor can expect in 2015, Price says more companies are likely to come to market in eye-catching fashion, including some of the big names from the smartphone and tablet app market.
So called sharing economy apps such as Uber and Airbnb have created new forms of competition in existing industries and have been embraced by consumers, while being feared by the incumbent businesses.
“The major IPOs of this year will be in the area of ‘sharing apps’ – Uber, Airbnb and Lyft are moving closer to IPO and look set to command significant valuations. These are exciting technologies, but our participation will be governed by the valuations at which these companies come to market,” he said.
The manager also has reasons to be optimistic on high-growth tech companies, after investors in 2014 became cautious on business with optimistic valuations leading to falling share prices for firms with decent revenues but lacking strong earnings growth.
“Markets have preferred those companies with lower valuations, but more clarity on earnings – Apple or Microsoft, for example,” he said. “As a result, there has been a convergence in valuations, and higher growth companies look relatively more attractive at the start of 2015.”
Price also flags security – a theme that rose to prominence in 2014 as cyber attacks on business became more common – as an area he expects to be an important part of the landscape for tech investors.
Around 122,000 cyber attacks are carried out each week, according to Band of America Merrill Lynch, with major attacks being made on eBay, Home Depot and JP Morgan in 2014. The average cost of a successful attack on a US firm is $12.7m and cybercrime is thought to cost the global economy around $500bn a year.
“Security was the all-pervasive trend of 2014 and remains one of the highest growth areas of technology. In 2014, the dark side of the internet was exposed: There are dangers to everyone being connected. It makes it easier for criminals to reach targets and to exploit those targets once found,” the fund manager explained.
“Security will continue to be a major theme in 2015: It is just getting started and companies are still only in the early stages of adjusting to the various threats presented by a new, more sophisticated, breed of hacker.”
Other tech trends he expects to perform in 2015 include software as a service, which is where software is licensed on a subscription basis and is often known as ‘software on demand’. This became mainstream in 2014 and Price thinks it will “break out” in 2015 as firms embrace the flexibility and cost-efficiency it can provide.
Meanwhile, he says the resurgence of Apple was one of the biggest stories of 2014 and predicts “all eyes” will be on the company again in 2015. Apple surged 37.96 per cent in 2014 and launched the popular iPhone 6, although Price is doubtful whether these strong gains will be repeated this year.
“It had an extremely good product cycle – revenues topped $42bn in the quarter, its strongest growth in almost two years. It had strong share price growth in 2014, and we believe it will be very hard to replicate this success next year,” he said.
The Allianz Technology investment trust has outperformed its Dow Jones World Technology Index benchmark over three and five years, although it lags in both share price and net asset value terms over one year.
FE Analytics shows it has gained 147.23 per cent since Price took over the portfolio in April 2007. As a point of comparison, the MSCI World Information Technology index has risen 122.10 per cent over this time while the MSCI World is up just 64.81 per cent.
Performance of indices in 2014
Source: FE Analytics
The trust’s largest holding is Apple, followed by Alibaba, Palo Alto Networks, Microsoft and SanDisk. It has 77.5 per cent of its assets in US stocks with 16 per cent in the far east and Pacific region, 3.7 per cent in cash, 1.7 per cent in Europe and 1.1 per cent in the UK.
Allianz Technology has ongoing charges of 1.32 per cent, but also levies a performance fee of 12.50 per cent on outperformance over its Dow Jones World Technology Index benchmark. It has no gearing and is trading on an 8.7 per cent discount.