Handsome returns of almost 50% from Allianz Technology (ATT ) weren’t quite enough to beat its Dow Jones World Technology index benchmark in a year dominated by the Magnificent Seven stocks.

The £1.3bn portfolio, run by Mike Seidenberg since July 2022 following the retirement of longstanding manager Walter Price, grew net asset value (NAV) by 46.4% in 2023 but still trailed its benchmark’s 48.2% gain, annual results last week showed. 

Seidenberg and newly appointed co-manager Erik Swords said the ‘strength of the Magnificent Seven and their dominance in the index made it difficult to beat’, especially as the portfolio holds less than the index in these stocks to avoid concentration risk.

That said, the managers hold Amazon and Tesla, which are not part of the benchmark, and Meta, and were rewarded by their strong performance. Facebook owner Meta is in the Dow Jones index but at almost half the 6.3% weighting the managers have in the Nasdaq stock.

While the overall underweight to the mega-caps may have hindered performance as the hype surrounding AI lifted tech stocks, Seidenberg said the portfolio benefited from the ‘broad-based rally at the end of the year’ as attention turned to ‘some of our higher-growth, mid-cap companies’.

‘This has tended to be a more fertile spot to find opportunities,’ Seidenberg (pictured below) said, adding that third-quarter earnings season highlighted the strength of some of his stocks, particularly in cloud computing.

‘We took bolder positions in these areas, which helped us participate in the rally in full.’

The weakness in the portfolio came from ‘idiosyncratic areas’ rather than themes, Seidenberg said, including online payroll services company Paycom, which fell after being hit by concerns about the outlook for the jobs market and ‘some operational issues that saw it miss on earnings’. Its shares were down 27% over the year.

Identity and access management group Okta saw its shares plummet 70% as ’execution challenges’ took their toll. 

Chair Tom Scholefield noted that the 87% weighting to US-listed companies at the end of December was ‘certainly high’, but said they continued to dominate tech, which is a reflection of the depth of US intellectual and financial capital, together with a supportive listed market structure. He added that many holdings generated revenues across the globe. 

Investors turn their nose up

The trust’s shares traded at an average 12.1% discount below their asset value in 2023, which reflected interest rate uncertainty and downbeat sentiment towards investment trusts generally, Scholefield said.

The board has tried to bring the share price closer to NAV with an ongoing share buyback programme that kicks in when the discount is consistently above 7%. It bought 16.5 million shares over the year at a cost of £40.2m and this year purchased a further £10.6m as at 12 March.

As at 18 March, the portfolio had generated an underlying three-year return of 37.3%, behind the 39.7% of its main rival Polar Capital Technology (PCT ) and with a 25.6% shareholder return that was less than half the benchmark’s 55.9%. 

Shavar Halberstadt, an analyst at Winterflood, the trust’s corporate broker, said ATT did well to keep pace with the benchmark last year despite the unprecedented concentration of returns at the top end of the mega-cap spectrum.

‘We continue to believe the fund is well placed to benefit once we see a greater dispersal of returns,’ he said.

JP Morgan Cazenove’s Christopher Brown prefers ATT to Polar Capital Technology, it having beaten the latter’s 45.9% NAV return last year. Maintaining an ‘overweight’ rating, he said: ‘Within the AIC Technology & Technology Innovation sector, we continue to prefer ATT to PCT (underweight), noting a favourable combination of stronger past NAV performance, slightly lower ongoing charges [0.7% vs 0.81%], and ATT’s robust discount control policy.’