Both trusts that make up the AIC Technology, Media, Telecommunications sector have more than trebled investors’ cash over the past five years, according to data from FE Analytics.
Allianz Technology Trust has made 249.3 per cent over this time, while the Polar Capital Technology Trust has made 207.46 per cent.
Performance of trusts over 5yrs
Source: FE Analytics
The next question then, is, can they keep this up?
Much of these gains have been driven by the FANG internet stocks (Facebook, Amazon, Netflix and Google) and Apple which together now make up around 10 per cent of the S&P 500 and have helped to push it to more than 30 daily record highs this year.
Both trusts hold four of these five companies in their top-10, although Walter Price, manager of the Allianz Technology Trust, has a cautious view of them in the near term.
“Amazon’s recent quarter was strong, but persistently rising costs could potentially weigh on near-term earnings growth,” he said, for example, before adding that his long-term view on these companies remains strong.
“They have strong competitive positioning, they continue to innovate, and we see significant opportunities for attractive earnings growth.
“We believe the US technology climate remains favourable despite the recent strong run in the sector. New technologies are helping businesses operate more efficiently and improve productivity. As corporate spending increases, we believe the stronger technology companies will continue to benefit.”
Ben Rogoff, lead manager of Polar Capital Technology Trust, is also optimistic the good times can keep coming for tech stocks in general, saying his excitement is being underpinned by a “new cycle thesis” that appears to be gathering strength with every earnings season.
He said this is evident from the growing divergence between incumbents and next-generation companies now that the Cloud has become the default computing platform.
“This bifurcation is likely to intensify from here as units of compute continue to gravitate towards the public cloud, while emerging technologies such as artificial intelligence (AI) are likely to accelerate this trend,” he added.
“Having just returned from Gartner’s annual symposium held in Barcelona, I was struck by the uptick in urgency on the part of IT leaders (CIOs) to transform themselves into ‘digital’ companies.
“This likely reflects the accelerated pace of disruption occurring across myriad sectors fuelled by transformational technologies including cloud computing, smartphones, the internet of things and artificial intelligence.
“While Amazon’s disruption of retail is well documented (and ongoing), many other industries are also being reshaped with new winners emerging.”
Allianz’s Price added that far from the days of the dotcom bubble when speculators threw money at anything related to tech, it is not just about the products but also the bottom line. He said that the sector can provide some of the best absolute and relative return opportunities in equity markets at the moment – especially for bottom-up stock pickers.
“The growth in technology is coming from the creation of new markets, rather than simply GDP growth,” he explained.
“Investors need to find companies generating organic growth by creating new markets or effecting significant change on old markets. Sectors such as automobiles, advertising, security, retail, and manufacturing are all being shaped and transformed by advances in technology.”
When asked where he is finding opportunities, Price said he likes semiconductors such as Micron Technology, cloud computing and software as a service like Amazon, robotics and automation such as Teradyne, and security, for example Palo Alto Networks.
“Compelling opportunities are presenting themselves across the high growth, growth at a reasonable price, and value segments of technology,” he added.
In terms of which of these trusts you should invest in, Winterflood noted Polar Capital Technology Trust is significantly underweight large cap stocks compared with Allianz Technology Trust.
“However, the manager continues to be benchmark aware as demonstrated by the fund's active share of around 50 per cent,” it said.
“While this strategy reduces shorter‐term volatility relative to the benchmark, we believe that a less constrained approach, such as that taken by Allianz Technology Trust, may lead to higher longer‐term returns from a fast‐paced dynamic sector that is undergoing significant change.”
Allianz Technology Trust is currently on a discount of 3.36 per cent compared with its one- and three-year averages of 4.42 and 5.66 per cent; Polar Capital is on a discount of 0.18 per cent compared with discounts of 0.03 and 2.22 per cent from its one- and three-year averages.
It is also worth noting the impact of currency gains on the sector’s returns over the past five years – Allianz Technology Trust has 82.59 per cent in the US and the Polar Capital vehicle has 66.8 per cent.
Performance of dollar vs pound over 5yrs
Source: FE Analytics
The dollar has made 19.57 per cent against sterling in this time.