The artificial intelligence rally that has supercharged US mega-cap stocks this year has delivered a good first year for Mike Seidenberg at the helm of Allianz Technology Trust (ATT ) following the retirement from Allianz Global Investors of Walter Price last July.

Half-year results published today showed the £1.2bn trust’s net asset value soared 29.7% over the six months to the end of June while the shares, currently trailing 12% below net asset value (NAV), gained 24.8%.  

While this falls short of the Dow Jones World Technology index’s 33% return, since Seidenberg became lead manager 13 months ago the shares have climbed 30% versus the benchmark’s 29%, according to Morningstar data.

The sight of such highly positive returns while the shares lag the portfolio is surprising and the board has bought back 10.8m shares this year in a bid to narrow the double-digit discount.

Price established a strong reputation as a tech investor in his 15 years in charge of the trust. Nevertheless, a drop in performance towards the end of his tenure means 10-year total shareholder returns, while an impressive 526%, are only 2% ahead of the benchmark.

The six-month period proved a ‘tale of two halves’ as rising interest rates strained the valuations of growth stocks, but a handful of the US’ largest technology companies saw their valuations rocket, causing a problem for the mid-cap focused fund.

As with rival Polar Capital Technology (PCT ), underweight positions in Apple and Microsoft compared to the index were the main reason for ATT’s underperformance against the benchmark. San Francisco-based Seidenberg noted that chasing sector weightings would only deliver short-term performance benefits and such portfolio concentration was not an ‘appropriate’ level of risk.

‘Whilst the mega-caps are largely great companies, the greater long-term growth story resides further down the market capitalisation scale with mid- and large-caps. This has been a point of differentiation for [ATT] for many years and continues to be a focus, now and into the future,’ said chair Tim Scholefield.

As companies need to reduce costs and improve productivity during a stagflationary period, Seidenberg (pictured below), who spoke to Citywire readers in a virtual event last November, expects to see accelerating demand for innovative and more productive solutions beyond AI to cloud computing, software-as-a-service and cyber security.

An overweight to Facebook parent company Meta, now 8% of the portfolio, was one of the largest contributors to performance as strong user engagement – which boosts overall advertising spend – as well as improvements in e-commerce advert spending drove earnings on its platform.

Other contributors included overweight positions in next-generation database company MongoDB, and HubSpot, an integrated software application company used primarily by small and medium-sized businesses. The decision not to own Chinese internet company Tencent was also a bonus as its shares drifted.

Aspen Technology, a software provider to the oil and gas industry, was a major detractor after reporting disappointing earnings off the back of several ‘complicated’ acquisitions over the period. These are likely to take time to make a positive impact, so Seidenberg exited the position.

He also sold out of security software provider Okta which had reiterated its cautious 2024 guidance and had noted that recent execution missteps were caused by over-hiring.

Over the period, Seidenberg reduced exposure to some financial services and professional services companies, which he believed would struggle amid the uncertain economic conditions and job reductions across various technology companies. He increased exposure to some cyclical companies in the semiconductor and hardware segments.

Performance under Seidenberg

Source: Morningstar

In the latest factsheet, top-ten holdings are Apple, chipmaker Nvidia and Microsoft, which have respective weightings of 9.1%, 9% and 8.4%. North America constitutes the bulk of the portfolio at 94.3% of assets, while the Far East and Pacific makes up 4.5%.

Like growth-focused rivals PCT and UK-weighted Herald (HRI ), ATT does not pay dividends. Its 0.7% annual ongoing charges are slightly cheaper than PCT’s 0.8% and Herald’s 1.05%.