REG - Allianz Tech Trust - Final Results
13/03/2024 07:00
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RNS Number : 5996G Allianz Technology Trust PLC 13 March 2024
For immediate release
12 March 2024
ALLIANZ TECHNOLOGY TRUST PLC
LEI: 549300OMDPMJU23SSH75
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
The following comprises extracts from the Company's Annual Financial Report
('AFR') for the period ended 31 December 2023. The full AFR is available to be
viewed on or downloaded from the Company's website at
www.allianztechnologytrust.com. Copies will be posted to shareholders shortly.
For further information contact:
Tim Scholefield Stephanie
Carbonneil Kelly Nice
Chairman Head of Investment
Trusts Company Secretary
Telephone:
020 3246 7475 020 3246
7539 020 3246 7475
MANAGEMENT REPORT
Highlights:
· Strong absolute performance - Net Asset Value per share ('NAV')
increased by 46.4%. The Company slightly underperformed its benchmark - by
1.8% - due to its underweight position in mega-cap stocks which led sector
gains. Share price increased by 44.5%.
· Good portfolio liquidity, the Company has no gearing of its own
and no private equity or unquoted holdings.
· The Board has full confidence in the Investment Manager's
differentiated strategy of focusing on mid- and large-cap stocks and in the
technology sector as a source of longer-term superior returns.
· Performance driven by exposure to AI, cyber-security and other
secular growth areas in technology.
Chairman's Statement
Welcome
Welcome to this report on Allianz Technology Trust PLC for the financial year
ending 31 December 2023. 2023 was certainly another tumultuous year in terms
of the geopolitical and economic backdrop. I am pleased to report that the
Company once again won the Investment Week Investment Company of the Year
Award in the 'Specialist' category, having previously done so from 2017 to
2021 inclusive. The award is based around our performance over 3 years, as
well as other qualitative factors.
Performance
Technology stocks performed strongly in 2023 buoyed by a combination of
optimism over the sector's growth potential together with an increasing
confidence that the peak in interest rates had finally been reached. Against
this backdrop, it is a pleasure to also be able to report a strong absolute
Net Asset Value ('NAV') Total Return of 46.4% for Allianz Technology Trust PLC
and a share price return of 44.5%. The NAV return was slightly behind the
48.2% return of our benchmark, the Dow Jones World Technology Index (sterling
adjusted, total return). This modest underperformance reflected our relatively
smaller exposure to the very largest group of companies, the so-called
'mega-caps'. Our portfolio manager focuses on the mid- and large-cap segments
reflecting our belief that companies at an earlier stage of their development
provide better opportunities for long-term earnings growth.
No dividend is proposed in the year ended 31 December 2023 (2022: nil). Given
the nature of the Company's investments and its stated objective to achieve
long-term capital growth, the Board continues to consider it unlikely that any
dividend will be declared in the near future.
Backdrop
The direction of global stock markets continued to be determined primarily by
the course of inflation. Central banks have navigated a difficult path since
inflation took off from historic lows, balancing the taming of rising prices
with the desire to avoid recession and it wasn't until toward the end of the
year that definitive signs that inflation had peaked became apparent. Those
signs were received well though and markets demonstrated renewed optimism in
anticipation of easing of interest rates.
There was little economic growth to speak about around the world. Indeed,
China which finally emerged from Covid restrictions achieved a lacklustre
recovery. Geopolitics continued to astound and confound humanity. In February
Ukraine passed its first anniversary of the Russian invasion and subsequent
war and in October the Middle East was thrust into the limelight when Hamas
terrorists launched a sudden attack in Israel with shocking civilian loss of
life. Israel responded and an intense conflict has since raged throughout Gaza
with a further terrible loss of life. As I write, in the Red Sea Houthi rebels
are attacking commercial shipping. The disruption from this latest episode
will have an impact on costs of shipped goods and is therefore a potential
threat to inflation remaining on course to meet central bank targets. US/China
and China/Taiwan tensions also remained present and of concern in 2023.
Despite the backdrop noted above, technology continued to excite and inspire.
An obvious connected theme to the geopolitical storm is cybersecurity. As
nation states, terrorist organisations and criminals have stepped up digital
attacks, cybersecurity has become more and more important to maintaining the
smooth functioning of companies, infrastructure and society. Of course,
artificial intelligence ('AI') was the story of the year, raising appetites
for technology once more, sending many technology stocks higher, notably
Nvidia, a so-called 'picks-and-shovels' company as it provides the chips
necessary to power cutting-edge AI applications.
Our portfolio manager is occasionally questioned as to whether the portfolio
may be too US centric. The US weighting is certainly high at around 87% as at
the end of December. The reality is that the US listed companies continue to
dominate tech, a reflection of the depth of US intellectual and financial
capital, together with a supportive listed market structure, although it
should be kept in mind that many of our portfolio companies generate revenues
all around the globe and just happen to be listed in the US.
Whilst China has been a source of tech growth in past years the path has not
been smooth. Our portfolio manager was an early investor in the China tech
story, however he also exited relatively early and for some years now has
preferred not to invest there, being primarily concerned about the possibility
of state interference in the activity of listed companies.
Discount
The Company traded at an average discount of 12.1% over the period (low of
8.7% and high of 15.7%) despite the positive absolute performance noted. In my
view this reflects the interest rate uncertainty apparent for much of the year
together with sentiment towards investment trusts in general. That latter
point is evidenced by the average discount for investment trusts reaching
levels not seen since the global financial crisis in 2008.
Our policy in respect of buying back shares remains unchanged. Currently we
would consider buying back shares during periods where the discount is
consistently over 7% and it is felt appropriate to do so given the prevailing
market backdrop. In the financial year we bought back an aggregate 16,530,708
shares at an average discount of 12.1% and total cost of £40.2m. Since the
end of the financial year, up to 12 March 2024 we have repurchased a further
3,271,401 shares at an average discount of 11.9% and total cost of £10.6m.
All shares repurchased have been held in treasury rather than cancelled as
this makes them readily available to be reissued if sufficient demand occurs
in the future.
At the forthcoming AGM, the Board proposes both a renewal of the usual 10%
authority to issue new shares and also a renewal of the authority to issue an
additional 10% in order to avoid the cost of a further General Meeting should
the 10% authority be exhausted as has happened previously when demand was
high. The Board will also once again seek authority to buy back up to 14.99%
of the shares in issue. The Board recommends that shareholders vote in favour
of these resolutions.
Any new shares will only be issued at a premium to NAV and if the Board is
satisfied that the issuance is in the best interests of existing shareholders.
Similarly, any buy back of shares will only take place where we believe it to
be beneficial to shareholders.
AI (and the debates stemming from it)
As previously commented, excitement around AI dominated the tech sector in
2023. Whilst AI itself is not new, advances in generative AI in 2023 pushed it
further into our consciousness than ever before. Whilst the main effect of
this was to generate excitement - the same excitement that aided the
performance of technology indices generally and a few companies specifically -
it also raised some fear and trepidation.
AI is a rapidly moving frontier in many ways and will necessarily bring risk
as well as opportunity as it develops and is implemented. On the one hand AI
should have significant benefits to society, removing menial tasks from many
roles and advancing the pace of new medical developments to name but two. On
the flip side, there are concerns it might negatively affect humanity, for
example via its impact on low-skill labour markets, particularly for certain
sectors where AI, robotics and automation can readily replace human labour. It
is also potentially subject to misuse and utilisation for negative and even
criminal activity.
The Board is cognisant of such potential issues. We are keeping a watching
brief and remain focused on the potential risk to the Company's portfolio and
operations. For example, we dedicated part of our 2023 strategy meeting to a
discussion around AI-related risks and opportunities. Amongst other aspects,
we discussed types of risk, how governments and authorities might respond, the
trajectory of AI algorithm development and how we should best identify risks
and opportunities as a Company going forward.
ESG
As you will be aware, the portfolio manager considers ESG as part of the stock
analysis and investment management process. The Board remains cognisant of
investors' concerns and desire to understand better the broader impact of the
investment choices that they make. The Board engages closely with Voya as the
Investment Manager and AllianzGI UK as the AIFM on ESG policies and processes
and further information can be found on pages 20 to 23 of the Annual Report.
Portfolio management
I am pleased to report that Erik Swords has been appointed as Portfolio
Manager alongside Mike Seidenberg, who will remain Lead Portfolio Manager,
with effect from 1 March 2024. Erik is a managing director and Head of Global
Technology at Voya and has 23 years of investment industry expertise. He
already works closely with Mike in the San Francisco office.
The costs of running your Company
Your Board has maintained its close attention to the costs of running the
Company. The Company's Ongoing Charges Figure ('OCF'), which is calculated by
dividing ongoing operating expenses by the average NAV, has remained the same
as 2022 at 0.70%.
The OCF excludes any performance fee due to the Investment Manager. No
performance fee has been earned in 2023. It should be noted that the
underperformance recorded over the past three years will have to be made back,
and the NAV will need to exceed the figure as at the end of 2020 (which set a
new high watermark) before any future performance fee can be accrued.
Board matters
Although I reported to shareholders as Chairman in the 2023 interim report,
this is my first Annual Financial Report in this role. I would therefore like
to reiterate my thanks to my predecessor, Robert Jeens, for his leadership of
the Company over his tenure and for his help and support as I took on the role
of Chairman. I hope that this next period in the Company's history can prove
as positive in respect of growth as the past one.
At the conclusion of the 2024 AGM, Humphrey Van der Klugt will step down from
the Board, having served since 2015. We thank Humphrey for his significant
contribution to the Company's development over the past nine years and his
part in its significant growth over that time.
Elisabeth Scott has served on the Board for nine years as at 1 February 2024
and to allow for orderly succession planning she will retire at the AGM in
2025.
As previously announced, with effect from 29 November 2023 Neeta Patel was
appointed as Chairman of the Management Engagement Committee replacing me.
Neeta will also become Senior Independent Director when Humphrey steps down.
Katya Thomson will be appointed as Chairman of the Remuneration Committee at
the conclusion of the 2024 AGM.
Although just outside of the reporting period, as previously announced, Simon
(Sam) Davis was appointed a non-executive Director on 1 January 2024 and has
also joined the Audit and Risk, Management Engagement, Remuneration and
Nomination Committees. Sam is a non-executive director of The Baillie Gifford
Japan Trust PLC. Sam brings a wealth of investment experience across global
markets, and we are therefore delighted that he is joining the Board and we
look forward to working with him.
Annual General Meeting ('AGM') arrangements
This year's AGM will be held on 24 April 2024 at 2.30pm. The full Notice of
Meeting can be found on page 75 of the Annual Report. Full details of the
special business to be considered at the AGM can be found on pages 31 to 33 of
the Annual Report.
As with 2023, the AGM will be a hybrid meeting, meaning shareholders can
either attend physically or online. We will not be providing online voting for
the 2024 meeting. This is due to the relatively high cost to enable the
service not having been matched by shareholder take up of the service over the
past two years. Should there be reasonable demand emerging from shareholders
in the future for online voting then we will look at a possible
reintroduction. For this reason, we strongly encourage all shareholders to
submit their votes using the proxy voting process by the deadline of 22 April
2024 as detailed in the Notice of Meeting on page 75 of the Annual Report.
Those shareholders attending virtually will be able to view the AGM and submit
questions electronically.
The Board encourages shareholders to attend the AGM if possible. A
presentation by the portfolio manager will be made at the start of the
meeting. For those unable to attend either physically or virtually, a
recording of the AGM will be posted to the Company's website as soon as
practicable after the event.
The Board looks forward to welcoming shareholders to this year's event.
Outlook
It is relatively difficult to make predictions for the year ahead in such an
uncertain world. However, most indicators are suggesting a pivot in interest
rates could well be on the cards which would certainly be positive for growth
stocks, including many technology stocks. Even if this does not provide a
tailwind, it should at least remove a headwind as the discount rate used to
value future cashflows of companies reduces. With valuations of many
technology companies having come back to more reasonable levels since the end
of 2020, this could allow some further recovery in the sector.
Geopolitics remain a source of uncertainty. Whilst the fortunes of individual
companies are often insulated from the direct impacts of world events,
heightened uncertainty will impact on sentiment in general and affect factors
such as consumer confidence. Certain companies could find themselves more
directly affected by geopolitics depending on their location, but this is
something our portfolio manager monitors closely as part of the portfolio
management process. It will certainly be an interesting year in terms of the
political arena, with elections in the US and almost certainly the UK.
We are not out of the woods in terms of fears around falling into recession,
however the hope is that central banks have done their job well enough and we
will instead see a 'soft-landing' - that is, a decline in inflation without a
significant set back in economic growth.
What is in no doubt is that technology will continue to dominate our lives and
re-shape the future. Such a 'new frontier' remains an extremely exciting place
to invest, though of course also brings risks for investors. On your behalf,
the Board in conjunction with the Investment Manager will remain focussed on
providing a portfolio that we believe will capture the exciting growth
available from investing in technology.
Tim Scholefield
Chairman
12 March 2024
Portfolio Manager's Report
2023 started on a cautious note. Although inflation had started to fall, it
was not yet beaten. The impact of rising interest rates was beginning to be
felt in the real economy, and there were concerns about how high rates may
need to rise. A winter energy crisis had been averted, but a 'hard landing'
still appeared a plausible scenario for the world economy.
There were glimmers of hope. Some of the supply chain bottlenecks that had
contributed to inflationary pressures were starting to unwind. Freight prices
had started to drop and the pandemic-related backlogs started to ease. There
was also the prospect of a stronger performance from China as the country
relaxed its strict quarantine restrictions.
However, the fragility of the economic environment was exposed by the collapse
of Silicon Valley Bank in March. Its weakness was attributed to losses on its
bond portfolio. It had significant exposure to startups and venture-backed
firms, but the US regulator stepped in swiftly to protect deposit holders. The
crisis threatened to destabilise the world's banking system, with Europe's
Credit Suisse also proving vulnerable. A forced merger with UBS appeared to
put an end to the crisis, but it left investors wary of other bear-traps in
the financial system.
In the meantime, attention continued to be minutely focused on inflation and
when the Federal Reserve's rate rising cycle might draw to a close. Rate rises
continued in the first half of the year, albeit at a slower pace. The problem
for policymakers was that while headline rates of inflation decelerated
sharply over the year, core inflation proved stickier.
Ultimately, however, the US Federal Reserve paused its tightening cycle in
July, even though it continued to talk tough on inflation. US Federal Reserve
chair Jerome Powell insisted they would stay the course until the inflation
battle had been won. At his Jackson Hole speech in August, he said: "We are
prepared to raise rates further if appropriate, and intend to hold policy at a
restrictive level until we are confident that inflation is moving sustainably
down toward our objective."
Towards the end of the year, speculation mounted that US interest rates may
soon be lowered as inflation continued to drop, and by December, the US
Federal Reserve had pivoted to forecasting 0.75% points of interest rate cuts
in 2024. Fears of a US recession appeared to be overblown and hopes grew of a
Goldilocks outcome for the US economy (with growth neither too hot nor too
cold). US GDP growth continued to be strong, rising 5.2% in the third quarter
fuelled by a strong consumer.
Elsewhere, growth was mixed. Economic activity in Europe remained anaemic at
best. However, the European Central Bank and Bank of England continued to
insist that the battle against inflation was far from over. Their hawkishness
versus the US Federal Reserve saw the euro and British pound strengthen
against the US dollar. The Japanese yen weakened against all three currencies,
in spite of a revival of economic growth and inflation in Japan as the
country's central bank continued its loose monetary policy. China's economic
rebound from pandemic restrictions disappointed, with the health of its
property sector a major concern.
Fears of inflation briefly revived in the summer, after oil prices rallied in
response to oil-producing countries agreeing to cut output. Nevertheless,
Brent crude closed the year slightly lower at just under US$80 a barrel.
Overall oil prices fell around 10% over 2023, marking the first annual decline
since 2020. 2023 ended with inflation pressures easing, with interest rate
cuts on the horizon and with economic growth holding up. It proved a far
better outcome than many had anticipated at the start of the year.
Stock markets
Global stock markets made progress in 2023, with the MSCI World Index up 17.2%
over the period. However, it was a rocky ride and for much of the year, market
leadership was held by a narrow range of artificial intelligence-related
companies. These 'Magnificent Seven' - Amazon, Alphabet, Apple, Meta
Platforms, Microsoft, NVIDIA and Tesla - benefited from growing excitement in
the potential for AI and its applications, following the launch of generative
AI programme Chat GPT.
These stocks drove global indices higher, but many areas did not participate
in the rally. While companies in the information technology, communication
services, consumer discretionary and industrials sectors turned in a
creditable performance, defensive stocks in the consumer staples, utilities
and health care sectors barely rose, while energy stocks were held back by
weakening oil and gas prices. With economic growth uncertain, investors
retreated to those companies with reliable earnings, even if they had to pay a
little more for them.
Stock market performance was still highly dependent on interest rate
expectations. There were two notable setbacks over the year: the first was
prompted by March's banking crisis, but this was swiftly resolved after
regulatory intervention; the second came in October after higher oil prices
prompted a brief spike in inflation, driving fears that rates would need to
stay higher for longer.
This narrow market leadership widened out in the final months of the year, as
investors started to anticipate rate cuts in the year ahead. November and
December saw a significant, broad-based rally. November was the strongest
month for markets in three years and supportive statements from the US Federal
Reserve ensured the rally continued to the end of the year. Overall, the MSCI
World Index recorded its strongest year since 2019.
Key themes
Interest rates and inflation
Just as they did in 2022, 2023 was a year when investors watched the US
Federal Reserve. Once again, the fortunes of individual companies appeared to
matter less than the latest comments from central banks as investors tried to
judge whether central banks would be able to tame inflation without collapsing
the economy.
Ultimately, however, markets are now reassured that the US Federal Reserve has
managed to engineer a 'soft landing'. The much-anticipated US recession
remains a possibility in the year ahead, but most market participants now
believe it is likely to be short-lived and shallow if it materialises at all.
Rates cuts could come as early as March in the US and would be welcomed by
markets.
Geopolitics
The fragile geopolitical landscape continued in 2023. The war in Ukraine was
ongoing, with little progress on either side. World powers continued to pick
sides, which saw some redrawing of trading relationships. Those countries that
could remain neutral, such as Vietnam or parts of Latin America, saw their
economies benefit.
There was new fragility in the Middle East after the unprecedented terrorist
attacks by Hamas on Israel on 7 October, and Israel's subsequent military
response which has seen ongoing conflict in Gaza with huge loss of life.
There was some easing of US/China relations, with Presidents Xi and Biden
meeting in November. Nevertheless, a return to the unfettered trading
relationship of recent history appeared improbable.
Artificial Intelligence
The launch of Chat GPT and its rapid adoption showed the potential for
artificial intelligence - and some of its risks. It holds the potential to
drive productivity gains for companies at a time when productivity has
stagnated in many Western economies. In a report in April, Goldman Sachs said
generative AI could raise global GDP by 7% - equivalent to almost $7 trillion.
Forward-thinking corporations are already looking at how AI could improve
their business and 2024 may be when these plans start to come to fruition.
Companies are investing significant amounts in AI. Microsoft, Google and
Amazon have done a number of blockbuster deals with AI start-ups in 2023. This
accounted for two-thirds of the US$27bn raised by fledgling AI companies in
2023, according to data from private market researchers PitchBook.
Performance
The Company's net assets rose 46.4% for the year to 31 December 2023. This was
marginally behind its benchmark, the Dow Jones World Technology Index
(sterling adjusted, total return), which rose 48.2%. The strength of the
'Magnificent Seven' and their dominance in the index made it difficult to
beat. We continued to hold below index weights in these stocks to avoid
concentration risk in the portfolio.
The broad-based rally at the end of the year was more favourable for the
Company, with market attention returning to some of our higher growth, mid cap
companies. This has tended to be a more fertile spot to find opportunities,
where a focus on bottom-up fundamentals and industry expertise can provide an
edge versus the market. The third quarter earnings season had confirmed the
strength of earnings momentum in a number of our holdings, particularly those
focused on cloud computing. We took bolder positions in these areas, which
helped us participate in the rally in full.
Weakness tended to come in idiosyncratic areas, rather than from any major
themes. For example, Pay.com was a notable detractor, hit by concerns over the
outlook for the jobs market and some operational issues that saw it miss on
earnings. Okta was also weak, impacted by execution challenges.
It was a mixed year for the semiconductor sector. It was important to
differentiate between 'leading and lagging' semiconductor groups. While Nvidia
soared on the back of demand for its AI-focused chips, it was a tougher year
for generic semiconductors and those exposed to auto-related sectors. The
Company moved away from auto-related semiconductors in the first half of the
year, and benefited from not holding generic semiconductor groups such as
Texas Instruments. Nvidia was a major holding from February onwards.
Geopolitical tensions continued to support demand for cybersecurity companies
during the year, particularly at the end of 2023 when software and IT services
outperformed other areas. Artificial intelligence also drove demand, with more
data requiring greater protection. Cyber attacks continued with a major
Chinese espionage campaign infiltrating the US government. A new SEC ruling
requiring disclosure of events within four days also impacted demand for
cybersecurity solutions. Overall spending on cybersecurity continues to grow
faster than other major technology segments.
The Company also benefited from the areas it didn't hold. For example, for
most of the year it did not hold anything in China. The weakness of Chinese
markets was a dominant feature of the year and this helped performance.
Stock highlights
The performance of the Magnificent Seven was the key highlight for equity
markets overall. Five of the Magnificent Seven (Apple, Alphabet, Meta
Platforms, Microsoft and Nvidia) are held in both the Company and in the
benchmark, generally at a lower concentration than the Company's benchmark
index. The exception was Meta, where the Company held a near-double benchmark
weight (at 6.3%). This provided the strongest contribution to returns over the
year. Having previously exited our historic position, we bought back the stock
at the end of 2022 on the back of expectations that its cost-cutting
initiatives, lower valuation level and secular growth would drive shares
higher. Over the year, an improving competitive position and new product
development helped push it higher. The Company also held Amazon.com and Tesla,
the two remaining Magnificent Seven stocks, which are not part of the
benchmark and were additive to performance.
MongoDB was another notable performer over the year. The database software
company posted consecutive quarters of strong earnings, ahead of market
expectations. Earnings were fuelled by a faster recovery in consumption trends
for the business, driven by the growth of generative AI.
China was a particular weak spot over the year, as international investors
withdrew from the market. We have been wary of the Chinese market for some
time, believing government interference threatens shareholder returns. Not
holding Tencent Holdings and to a lesser extent Alibaba contributed to overall
performance versus the benchmark during the year.
The one Chinese stock we owned was JD.com, holding it briefly between January
and February. It is an online direct sales company offering a wide range of
products through its website and mobile applications. We thought it may be a
beneficiary of China's reopening trade. As it was, the Chinese consumer failed
to revive and we sold it quickly. Although it detracted from overall
performance, it proved a prudent sale, with the share price tumbling after we
exited.
Identity management group Okta was a weak spot. It had a number of operational
problems: it had over-hired, leaving sales territories cut too small for sales
reps to meet their numbers. The company also struggled from increased
competition, while a large number of cyber attacks weighed on its credibility.
Paycom Software was also a performance detractor, having suffered a series of
disappointing earnings reports. As a designer and developer of software
solutions to manage the employment life cycle, it was hit by concerns about
the jobs outlook and a moderation in economic growth.
The Company's cash weighting was lower than last year - at around 2% on
average. This detracted from returns given the strength of markets,
particularly at the start of the year. Nevertheless, it allowed us to retain
optionality in the portfolio during periods of uncertainty.
Looking forward
At the start of 2023, valuations were compelling. After a significant market
improvement - along with higher earnings - technology companies appear to be
trading at around fair value today. That said, there are some tailwinds for
the year ahead and we believe the equity market recovery over the past few
months can extend into 2024.
At the December 2023 Federal Open Market Committee meeting, the US Federal
Reserve signalled multiple rate cuts could come in 2024. Inflation continues
to weaken and, while the jobs market remains buoyant, growth is moderating.
With interest rate cuts on the horizon and an economic soft landing expected,
investors are likely to be confident enough to look beyond the mega-caps into
other parts of the market. Broader earnings growth may accelerate this trend.
There are going to be bumps along the way and the market might be due for a
short-term pause after its recent strength, but there are reasons to be
optimistic about the long-term secular growth prospects for technology. These
include artificial intelligence and machine learning, the Internet of Things,
cyber security, digital assets and mobility. The macroeconomic challenges of
the past few years are likely to ease, which should give investors greater
confidence.
The challenges of the past few years have forced companies to look at their
cost structures, re-engineer their businesses and cut unprofitable lines. The
result is that the survivors are far stronger, with better competitive
positions and stronger earnings. We continue to believe the technology sector
can provide some of the best absolute and relative return opportunities in the
equity markets.
Mike Seidenberg
Lead Portfolio Manager
Voya Investment Management Co LLC
12 March 2024
Viability Statement
In accordance with the Corporate Governance provisions the Company is required
to make a forward looking (longer term) Viability Statement. In order to do
this the Board has considered the appetite for a technology investment trust
against the current market backdrop, and has formally assessed the prospects
for the Company over a period of five years. The Board believes that the
period of five years is appropriate and is in line with the five year
continuation vote. The next continuation vote will be put to shareholders at
the AGM in 2026. In order to assess the prospects for the Company the Board
has considered:
- The investment objective and strategy taking into account recent,
past and potential performance against both the benchmark, other indices of
note and peers;
- The financial position of the Company, which does not currently
utilise gearing in any form but does maintain a portfolio of, in the main,
non-income bearing investments;
- The liquidity of the portfolio and the ability to liquidate the
portfolio on the failure of a continuation vote;
- The macro economic conditions and geopolitical events;
- The ever increasing level of technology adopted by both
individuals and corporations alike;
- The inherent risks in such technology both in terms of speed of
advancement; and
- The principal risks faced by the Company as outlined below.
The Board is fully aware that the world of technology is constantly evolving
and growing and could potentially look very different in five years. However,
based on the results of the formal assessment, through regular updates from
the AIFM and the Investment Manager, the Board believes it is reasonable to
expect that the Company will continue in operation and meet its liabilities
for the period of five years under this review.
Investment Controls and Monitoring
The Board in conjunction with the AIFM and the Investment Manager has put in
place a schedule of investment controls and restrictions within which
investment decisions are made. These controls include limits on the size and
type of investment and are monitored on a constant basis. They are formally
signed off by the AIFM and the Investment Manager every month and are reviewed
by the Board at every meeting.
Principal & Emerging Risks and Uncertainties
The principal risks identified by the Board are set out in the table below,
together with information about the actions taken to mitigate these risks. A
more detailed version of this table in the form of a Risk Map and Controls
document is reviewed in full and updated by the Audit & Risk Committee and
Board at least twice per year. Individual risks, including emerging risks and
threats to reputation, are considered by the Board in further detail depending
on the market situation and a high-level review of all known risks faced by
the Company is considered at every Board meeting. The principal risks and
uncertainties faced by the Company relate to the nature of its objectives and
strategy as an investment company and the operations of its third party
service providers.
Description Mitigation
Investment strategy and performance risk The Board has established a schedule of investment controls which is monitored
monthly and reviewed at each Board meeting. The Investment Manager has
The Company's NAV may be adversely affected by the Investment Manager's responsibility for sectoral weighting and for individual stock picking, having
inappropriate allocation of funds to particular sub-sectors of the technology taken due account of Investment Objectives and Controls that are agreed with
market and/or to the selection of individual stocks that fail to perform the Board from time to time and regularly reviewed. These seek, inter alia, to
satisfactorily, leading to poor investment performance in absolute terms ensure that the portfolio is diversified and that its risk profile is
and/or against the benchmark. appropriate.
Technology sector risk
The technology sector is characterised by rapid change. New and disruptive The Board reviews investment performance, including a detailed attribution
technologies, including AI, can place competitive pressures on established analysis comparing performance against the benchmark, at each Board meeting.
companies and business models, and technology stocks may experience greater At such meetings, the Investment Manager reports on major developments and
price volatility than securities in some slower changing market sectors. changes in technology market sectors and also highlights issues relating to
individual securities. The Board has reviewed the risks and opportunities
presented by AI via discussion with a subject matter expert. The portfolio is
diversified.
Cyber risk
The Company may be at risk of cyber attacks which may result in the loss of The operations of the Company are carried out by third party service
sensitive information or disruption to the business. providers. All service providers report to the Board on operational issues
including cyber risks and the controls in place to capture potential attacks.
See Operational Risk below.
Market risk
The Company's NAV may be adversely affected by a general decline in the The Board, the AIFM and the Investment Manager monitor stock market movements
valuation of listed securities and/or adverse market sentiment towards the and may consider hedging, gearing or other strategies to respond to particular
technology sector in particular. Although the Company has a portfolio that is market conditions. The AIFM and the Investment Manager maintain regular
diversified by company size, sector and geography, its principal focus is on contact with shareholders to discuss performance and expectations and to
companies with high growth potential in the mid-size ranges of capitalisation. convey the belief of
The shares of these companies may be perceived as being at the higher end of
the risk spectrum, leading to a lack of interest in the Company's shares in the Board and the Investment Manager that superior returns can be generated
some market conditions. The Company's portfolio may be affected by changes to from investment in carefully selected companies that are well managed,
central banks interest rates. Higher interest rates have had an adverse financially strong and focused on those segments of the technology market
impact on growth stocks. where disruptive change is occurring.
Market sentiment may quickly deteriorate in the face of geopolitical events The Board, the AIFM and the Investment Manager would monitor the progress of
and effects on the macro-economic environment. the unexpected events very closely and initiate appropriate responses where
possible.
Currency risk
A high proportion of the Company's assets is likely to be held in securities The Board monitors currency movements and determines hedging policy as
that are denominated in US Dollars, whilst its accounts are maintained in appropriate. The Board does not currently seek to hedge this foreign currency
Sterling. Movements in foreign exchange rates affect the performance of the risk.
Investment Portfolio and create a risk for shareholders.
Financial and liquidity risk
The financial risks to the Company and the controls in place to manage these Financial and liquidity reports are provided to and considered by the Board on
risks are disclosed in detail in Note 13 in the Annual Report. a regular basis.
Operational risk The Board receives regular reports from the AIFM, the Investment Manager and
third parties on internal controls highlighting areas of exception, including
The Company may be impacted by disruption to or the failure of the systems and reports on monitoring visits carried out by the Depositary on behalf of the
processes utilised by the AIFM and the Investment Manager or other third party Company. The Board has further considered the increased risk of cyber-attacks
service providers. This encompasses disruption or failure caused by and fraud and has received reports and assurance regarding the controls in
cybercrime, fraud and errors and covers dealing, trade processing, place and details of whistleblowing procedures.
administrative services, financial and other operational functions.
Key individual risk
The Company could suffer disruption to operations as a consequence of loss of Succession plans are in place for the Board. The lead portfolio manager is
key individuals e.g the lead portfolio manager. supported by Erik Swords, portfolio manager and an experienced team of
technology investors. Cover is available for core members of the relevant
teams of the AIFM.
In addition to the specific principal risks identified in the table above,
general risks are also present relating to compliance with accounting, legal
and regulatory requirements, and with corporate governance and shareholder
relations issues which could have an impact on reputation and market rating.
Management of the services provided and the internal controls procedures of
the third party providers is monitored and reported on by the AIFM to the
Board. These risks are all formally reviewed by the Board twice each year and
at such other times as deemed necessary. Details of the Company's compliance
with corporate governance best practice, including information on relations
with shareholders, are set out in the Corporate Governance Statement within
the Directors' Report beginning on page 34 of the Annual Report.
The Board's review of the risks faced by the Company also includes an
assessment of the residual risks after mitigating action has been taken.
On behalf of the Board
Tim Scholefield
Chairman
12 March 2024
Related Party Transactions
During the financial year no transactions with related parties took place
which would materially affect the financial position or the performance of the
Company.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Financial Report and
the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the total return of the Company for
that year. In preparing these financial statements, the Directors are required
to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been
followed; and
- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will continue in
business.
The Directors confirm that the financial statements comply with the above
requirements.
The Directors are responsible for keeping adequate accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, a Directors' Report, and Corporate Governance
Statement, and a Directors' Remuneration Report which comply with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website. The
financial statements are published on www.allianztechnologytrust.com, which is
a website maintained by the Alternative Investment Fund Manager. The work
undertaken by the Auditors does not involve consideration of the maintenance
and integrity of the website and, accordingly, the Auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website. Visitors to the
website need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
Neither an audit nor a review provides assurance on the maintenance and
integrity of the website, including controls used to achieve this, and in
particular whether any changes may have occurred to the financial information
since first published. These matters are the responsibility of the Directors
but no control procedures can provide absolute assurance in this area.
The Directors each confirm to the best of their knowledge that:
(a) the Financial Statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the assets,
liabilities, financial position and return of the Company; and
(b) the Strategic Report includes a fair review of the
development and performance of the business and the position of the Company,
along with a description of the principal risks and uncertainties that the
Company faces.
The Directors confirm that the Annual Report and Financial Statements, taken
as a whole are fair, balanced and understandable and provide the information
necessary to assess the Company's position and performance, business model and
strategy.
For and on behalf of the Board
Tim Scholefield
Chairman
12 March 2024
Investment Portfolio as at 31 December 2023
Investment Sector(#) Sub-sector(#) Country Fair Value % of Portfolio
£'000
Microsoft Software Systems Software United States 109,646 8.5
NVIDIA Semiconductors & Semiconductor Equipment Semiconductors United States 92,982 7.2
Apple Technology Hardware, Storage & Peripherals Technology Hardware, Storage & Peripherals United States 81,921 6.4
Alphabet Interactive Media & Services Interactive Media & Services United States 63,727 5.0
Meta Platforms Interactive Media & Services Interactive Media & Services United States 53,809 4.2
Broadcom Semiconductors & Semiconductor Equipment Semiconductors United States 46,208 3.6
Amazon.com Broadline Retail Broadline Retail United States 45,310 3.5
Lam Research Semiconductors & Semiconductor Equipment Semiconductor Equipment United States 40,721 3.2
Monolithic Power Systems Semiconductors & Semiconductor Equipment Semiconductors United States 39,131 3.0
Micron Technology Semiconductors & Semiconductor Equipment Semiconductors United States 34,757 2.7
Top ten investments 608,212 47.3
MongoDB IT Services Internet Services & Infrastructure United States 34,468 2.7
Zscaler Software Systems Software United States 32,664 2.5
Adobe Software Application Software United States 31,918 2.5
Samsung Electronics Technology Hardware, Storage & Peripherals Technology Hardware, Storage & Peripherals South Korea 31,855 2.5
ServiceNow Software Systems Software United States 31,697 2.5
Advanced Micro Devices Semiconductors & Semiconductor Equipment Semiconductors United States 31,409 2.4
Datadog Software Application Software United States 30,956 2.4
CrowdStrike Software Systems Software United States 30,103 2.3
Shopify IT Services Internet Services & Infrastructure Canada 26,944 2.1
MercadoLibre Broadline Retail Broadline Retail United States 26,109 2.0
Top twenty investments 916,335 71.2
Taiwan Semiconductor Semiconductors & Semiconductor Equipment Semiconductors Taiwan 25,290 2.0
HubSpot Software Application Software United States 23,754 1.9
Snowflake IT Services Internet Services & Infrastructure United States 23,456 1.8
Applied Materials Semiconductors & Semiconductor Equipment Semiconductor Equipment United States 22,554 1.8
Cyberark Software Software Systems Software Israel 22,470 1.7
Arista Networks Communications Equipment Communications Equipment United States 21,493 1.7
Palo Alto Networks Software Systems Software United States 21,465 1.7
Cloudflare IT Services Internet Services & Infrastructure United States 20,828 1.6
KLA Semiconductors & Semiconductor Equipment Semiconductor Equipment United States 19,206 1.5
Cadence Design Software Application Software United States 18,270 1.4
Top thirty investments 1,135,121 88.3
Marvell Technology Semiconductors & Semiconductor Equipment Semiconductors United States 15,933 1.2
Western Digital Technology Hardware, Storage & Peripherals Technology Hardware, Storage & Peripherals United States 13,478 1.1
NXP Semiconductors Semiconductors & Semiconductor Equipment Semiconductors Netherlands 13,166 1.0
Expedia Internet & Direct Marketing Retail Internet & Direct Marketing Retail United States 13,034 1.0
Elastic NV Software Application Software Netherlands 12,212 1.0
ON Semiconductor Semiconductors & Semiconductor Equipment Semiconductors United States 12,116 0.9
Monday.com Software Systems Software Israel 12,110 0.9
Synopsys Software Application Software United States 12,085 0.9
Trade Desk Media Advertising United States 9,945 0.8
Intel Semiconductors & Semiconductor Equipment Semiconductors United States 8,033 0.6
Top forty investments 1,257,233 97.7
Okta IT Services Internet Services & Infrastructure United States 7,811 0.6
Uber Technologies Ground Transportation Passenger Ground Transportation United States 7,539 0.6
JFrog Software Systems Software Israel 7,441 0.6
Pinterest Interactive Media & Services Interactive Media & Services United States 6,762 0.5
Total Investments 1,286,786 100.0
(#) GICS Industry classifications
INCOME STATEMENT
for the year ended 31 December 2023
2023 Revenue £'000s 2023 Capital £'000s 2023 2023 Revenue 2022 2022
Total Return £'000s £'000s Capital Total Return £'000s
£'000s
Gains (losses) on investments held at fair value through profit or loss - 424,802 424,802 - (501,617) (501,617)
Exchange (losses) gains on currency balances (46) (1,122) (1,168) 227 9,307 9,534
Income 5,372 - 5,372 6,683 - 6,683
Investment management fee and performance fee (6,866) - (6,866) (6,795) - (6,795)
Administration expenses (1,003) - (1,003) (1,098) - (1,098)
Profit (loss) on ordinary activities before taxation (2,543) 423,680 421,137 (983) (492,310) (493,293)
Taxation (937) - (937) (868) - (868)
Profit (loss) on ordinary activities attributable to ordinary shareholders (3,480) 423,680 420,200 (1,851) (492,310) (494,161)
Earnings (loss) per ordinary share (basic & diluted) (0.88p) 106.71p 105.83p (0.45p) (118.62p) (119.07p)
The total return column of this statement is the income statement of the
Company.
The supplementary revenue and capital columns are both prepared under the
guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The profit attributable to Ordinary shareholders for the year disclosed above
represents the Company's total Comprehensive Income. The Company does not have
any other Comprehensive Income.
BALANCE SHEET
at 31 December 2023
2023 2022
£'000s £'000s
Non Current Assets
Investments held at fair value through profit or loss 1,286,786 898,937
Current Assets
Other receivables 690 838
Cash and cash equivalents 34,292 41,695
34,982 42,533
Current Liabilities
Other payables (2,993) (2,522)
Net current assets 31,989 40,011
Total net assets 1,318,775 938,948
Capital and Reserves
Called up share capital 10,719 10,719
Share premium account 334,191 334,191
Capital redemption reserve 1,021 1,021
Capital reserve 1,010,278 626,971
Revenue reserve (37,434) (33,954)
Shareholders' funds - Equity 1,318,775 938,948
Net asset value per Ordinary share 338.2p 231.0p
The financial statements of Allianz Technology Trust PLC, company number
3117355, were approved and authorised for issue by the Board of Directors on
12 March 2024 and signed on its behalf by:
Tim Scholefield
Chairman
12 March 2024
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2023
Called up Share Capital £'000s Share Premium Account Capital Redemption Reserve Capital Reserve Revenue Reserve Total
£'000s £'000s £'000s £'000s £'000s
10,719 334,191 1,021 1,158,544 (32,103) 1,472,372
Net assets at
1 January 2022
Revenue loss - - - - (1,851) (1,851)
Shares repurchased into treasury during the year - - - (39,263) - (39,263)
Capital loss - - - (492,310) - (492,310)
Net assets at 10,719 334,191 1,021 626,971 (33,954) 938,948
31 December 2022
10,719 334,191 1,021 626,971 (33,954) 938,948
Net assets at
1 January 2023
Revenue loss - - - - (3,480) (3,480)
Shares repurchased into treasury during the year - - - (40,373) - (40,373)
Capital profit - - - 423,680 - 423,680
Net assets at 10,719 334,191 1,021 1,010,278 (37,434) 1,318,775
31 December 2023
Note A
Summary of Accounting Policies
The financial statements - have been prepared on the basis of the accounting
policies set out below.
The financial statements have been prepared in accordance with The Companies
Act 2006, FRS 102 and with the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts' (SORP)
issued by the Association of Investment Companies (AIC) in July 2022.
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature
has been presented alongside the Income Statement. In accordance with the
Company's status as a UK investment company under section 833 and 834 of the
Companies Act 2006, net capital returns may be distributed by way of dividend.
The requirements within FRS 102 section 7.1A have been met to qualify for the
exemption to prepare a Cash Flow Statement. Therefore the Cash Flow Statement
has not been included in the financial statements.
The accounting policies adopted in preparing the current year's financial
statements are consistent with those of previous years.
The Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the financial statements as the assets of the
Company consist mainly of securities which are readily realisable and
significantly exceed liabilities. The Directors have considered the Company's
investment objective and capital structure. The Directors have also considered
the risks and consequences of the geopolitical and macro-economic events on
the operational aspects of the Company and have concluded that the Company has
adequate financial resources to continue in operational existence and meet its
objectives for twelve months after the approval of the financial statements.
Revenue
Dividends received on equity shares are accounted for on an ex-dividend basis.
UK dividends are shown net of tax credits and foreign dividends are grossed up
at the appropriate rate of withholding tax.
Special dividends are recognised on an ex-dividend basis and treated as a
capital or revenue item depending on the facts and circumstances of each
dividend.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the equivalent of the cash dividend is
recognised as revenue. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
Deposit interest receivable is accounted for on an accruals basis.
Investment management fees and administrative expenses
The investment management fee is calculated on the basis set out in Note 2 to
the financial statements and is charged in full to revenue as permitted by the
SORP. Performance fees are charged in full to capital, as they are directly
attributable to the capital performance of the investments. Other
administrative expenses are charged in full to revenue. All expenses are
recognised on an accrual basis.
Valuation
As the Company's business is investing in financial assets with a view to
profiting from their total return in the form of increases in fair value,
financial assets are held at fair value through profit or loss in accordance
with FRS 102 Section 11: 'Basic Financial Instruments' and Section 12: 'Other
Financial Instruments'.
Investments held at fair value through profit or loss are initially recognised
at fair value. After initial recognition, these continue to be measured at
fair value, which for quoted investments is either the bid price or the last
traded price depending on the convention of the exchange on which the
investment is listed. Gains or losses on investments are recognised in the
capital column of the Income Statement. Purchases and sales of financial
assets are recognised on the trade date, being the date which the Company
commits to purchase or sell the assets.
Transactions with the Investment Manager and related parties
The amounts paid to the Investment Manager together with details of the
investment management contract are disclosed in Note 2 on page 59 of the
Annual Report. The existence of an independent Board of Directors demonstrates
that the Company is free to pursue its own financial and operating policies
and therefore, under FRS102 Section 33: 'Related Party Disclosures', the
Investment Manager is not considered to be a related party.
The Company's related parties are its Directors. Fees paid to the Company's
Board, including employer national insurance contributions, are disclosed in
Note 3 on page 60 of the Annual Report. There are no other identifiable
related parties at 31 December 2023, and as of 12 March 2024.
Note B
Return per Ordinary Share
The earnings per Ordinary Share of 105.83p (2022: loss per Ordinary Share
119.07p) is based on the weighted average number of Ordinary Shares in issue
of 397,030,186 (2022:415,019,252).
Note C
Fixed Asset Investments
Included in the cost of investments are transaction costs and stamp duty on
purchases which amounted to £193,000 (2022: £207,000) and transaction costs
on sales which amounted to £235,000 (2022: £419,000).
Note D
2023 Financial Information
The financial information for the period ended 31 December 2023 has been
extracted from the statutory accounts for that year. The auditor's report on
those accounts was unqualified and did not contain a statement under either
Section 498(2) or (3) of the Companies Act 2006. The Annual Financial Report
has not yet been delivered to the Registrar of Companies.
2022 Financial Information
The financial information for the period ended 31 December 2022 has been
extracted from the statutory accounts for that year. The auditor's report on
those accounts was unqualified and did not contain a statement under either
Section 498(2) or (3) of the Companies Act 2006. The Annual Financial Report
has been delivered to the Registrar of Companies.
Annual Report and Financial Statements
The full Annual Financial Report is available to be viewed on or downloaded
from the Company's website at www.allianztechnologytrust.com. Neither the
contents of the Company's website nor the contents of any website accessible
from hyperlinks on the Company's website (or any other website) is
incorporated into, nor forms part of this announcement.
Annual General Meeting
The Annual General Meeting of the Company will be held at Grocers' Hall,
Princes Street, London EC2R 8AD on Wednesday 24 April 2024 at 2.30pm.
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