Walter Price, Portfolio Manager of Allianz Technology Trust PLC
Questions & Answers with
Walter Price, Portfolio Manager of the Allianz Technology Trust
To start the second part of the conference Lawrence Gosling was joined on stage by Walter Price. He opened up by asking whether he felt that the performance of technology stocks over the last year was reflective of the fundamentals in the sector, or if they had got ahead of themselves. Walter explained how he feels that there is a structural growth theme in place for technology companies. He alluded to his recent attendance at the Dreamforce Conference held in San Francisco by Salesforce. At this event one of the themes was the 4th industrial revolution that we are seeing in the global economy this follows the mechanisation of industry, the advent of electricity and the rise of computers, and covers the spread of digitisation and technology to all companies. Walter believes this accurately captures the sense he gets of companies across a range of sectors seeing technology and digitisation as key drivers for the future growth and improvement in productivity of their businesses. Technology companies will be a huge part of this in helping to facilitate this process, and therefore profiting from it themselves.
The cloud is the most obvious example of this, and is a theme Walter is playing in his portfolio. This is something that has emerged in the last five years as a big growth area for technology businesses. It allows businesses to get rid of old physical data centres, and more efficiently manage all their data by outsourcing its management and maintenance. Not only does it make it cheaper to manage the data, it also allows companies to analyse the data more easily, using a technology business to help understand the data and spot trends which they are able to act on to improve their business.
The discussion then moved on to Apple, and whether with the release of the iPhone X and recent strong performance it could become the world’s first trillion-dollar company¹. Walter believes that the company is well placed, with over 750 million iPhones in the world, just replacing these on a 2/3 year cycle provides them with over 200mn new handsets a year to provide to consumers. However, another big bang of growth to drive the stock up isn’t expected, but their robust business model could continue to deliver strong returns, and maybe a trillion-dollar market cap.
Walter then covered where he sees disruption striking next, and said that it was hard to tell which incumbent industries would be the next to come under pressure. He felt that two obvious areas were already facing some headwinds: the grocery industry and automotive. In the grocery industry the potential for Amazon entering here in a meaningful way is potentially significant, and their acquisition of Whole Foods shows a desire to do this. In addition, in automotive, whilst Tesla is still only a small part of the market it has changed the way many of the incumbents manage their businesses, and which products they want to promote, so it is already disrupting the industry, while not securing a high amount of market share.
Many technology companies resort to going public much later, due to the ability for them to fund themselves from the private markets, and it was questioned whether unlisted technology was a place where Walter should be investing within the Allianz Technology Trust. Walter's main issue with this is the problem when valuations of these companies start to fall. In this situation this can be hard to report to investors in a clear way, and also very hard to exit a position. He added that valuations in some of these companies had got ahead of themselves, for example in the recent IPO (Initial Public Offering) of Snap Chat¹ the shares have underperformed since its market entry, in part he feels because the private valuation was too high.
Walter rounded off the discussion with his views on where the best opportunities in the technology industry are, this is in companies that are able to capitalise on the theme of the 4th industrial revolution. These are businesses around artificial intelligence, cloud computing and robotics that have technologies that are applicable for many companies to change how they do business. Walter also said that it’s important to look beyond the large technology names in the space, as many smaller companies are producing innovations that are helping companies change their business models. Maybe even the disrupters could be disrupted in the future, and therefore it always pays to stay paranoid in technology.
¹ This is no recommendation or solicitation to buy or sell any particular security.
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