Companies such as Facebook and Apple are unlikely to lead the technology sector over the next 10 years as demographic changes favour stocks set to benefit from the “fourth industrial revolution”, according to Allianz Global Investors’ Walter Price.
Price, who manages the four FE Crown-rated Allianz Technology Trust, said robotics, cloud computing and artificial intelligence (AI) technologies present some of the best opportunities in the sector.
Strong growth in markets over recent years has been attributed to the so-called FAANG – Facebook, Amazon, Apple, Netflix and Google parent company Alphabet – in the US and the ‘BATs’ – Baidu, Alibaba and Tencent – in emerging markets.
As the below chart shows, the MSCI ACWI/Information Technology index has far outpaced the broader MSCI AC World over the past three years.
Performance of indices over 3yrs
Source: FE Analytics
“In my view we’ve had this transformative period for consumer technology where we had tremendous value for investors created by the iPhone and social media,” said Price.
“It’s created $1trn in investor wealth if you look at the value of Google and Facebook and what Apple has gone up by?
“So, the question is: What is the encore? Where does technology go from here?”
The US-based manager added: “The reason I continue to be optimistic about technology is that on the enterprise side things are just getting started.”
Enterprise technology, which serves organisations rather than individuals, is likely to become the main driver for the market in the coming years.
Indeed, Price highlighted the impact of changing demographic trends and the likely impact it will have on industry.
He said: “You have the fact that people are living longer and the population continues to grow but the working population is going to be about the same given demographic data for the next 15-20 years and therefore you need to make the population more productive – it’s creating a shortage of labour.
“The effect is that it creates a demand for technology and demand for productivity among companies.”
Price (pictured) said improving cashflows at companies and a stronger economic backdrop mean that businesses will be more likely to invest in greater automation to combat the labour shortage.
“You have the capability of new products that enable productivity and you have demand and supply coming together to meet it,” he explained. 
“I think the result is that we’re embarking on a very favourable period for enterprise technology, [which] is going to last for another decade. It’s not like a one-year [trend], it’s going to last for a long period of time.”
Indeed, the manager highlighted figures from market research firm Fundstrat that estimated a $400bn annual spend would be required to replace offset the expected labour shortfall.
The manager said similar trends had been seen after the second world war and in the 1990s, when companies had spent greater amounts on technology to offset worker shortages.
As such, companies that can benefit from the increased spend on technology are likely to show greater growth potential than more mainstream technology stocks.
Given the strong rise in technology stock valuations, some investors may be wary of arriving late to the sector.
However, Price said valuations – even in more consumer-focused companies – are justified given the cashflows and strong earnings growth potential.
Indeed, while valuations are also high among some of the cloud-computing and internet companies the manager continues to see value given the revenue potentials linked with the move towards greater automation.
He said: “There’s a tendency in the big run in technology and value creation on the consumer side to say ‘oh, it’s over’, ‘should I be selling’, ‘valuations are too high’.
“But the area that has been bubbling up and developing is the cloud. It is the gift that keeps on giving in the sense that once you have your data in the cloud, it’s easy to do AI and improve processes.”
While there are concerns that AI could prove too disruptive and make some jobs obsolete, Price said there will be a need for people to ensure that the machine learning programmes work properly.
He explained: “AI is only as good as the people training and using it and it actually creates a lot of demand for people who know a subject area and can use the tools that are available for analysing data.
“One of the themes of AI is to make it easy enough to educate the workforce enough on how to use it to make their jobs better and get rid of the boring work.
“You get more interesting work that won’t easily be automated by AI and is more fragmented and applied to make jobs better.”
He added: “Technology is always destroying some industries and jobs and making other jobs better.”
Despite taking a more positive outlook on enterprise technology, Allianz Technology Trust’s largest holding is online retailer and disruptor Amazon, which represents a 6.4 per cent portfolio holding. Other top holdings include other FAANG stocks, including Apple, Facebook and Alphabet and it also owns Chinese tech giants Alibaba and Tencent.
However, Price enterprise companies are well represented in the portfolio with top holdings including cloud computing companies ServiceNow, Arista Networks and Workday.
While the trust has a global remit, the trust has a heavy bias towards North America stocks, which represent 87 per cent of the portfolio.
The manager said the weighting reflected the strength of the investable companies found in the US at valuations he was comfortable with.
Performance of trust vs sector under manager
Source: FE Analytics
Last year, the trust delivered a total return of 42.69 per cent compared with a 38.48 per cent with the average IT Tech, Media & Telecomm sector trust. Under Price it has returned 441.02 per cent compared with a 248.74 per cent rise in its average peer.
Allianz Technology Trust has ongoing charges of 1.03 per cent, is not geared and trades at a discount of 2 per cent to net asset value (NAV), according to data from the Association of Investment Companies.