Welcome to this report on Allianz Technology Trust PLC for the financial year ending 31 December 2024. In recent times global macroeconomic and geopolitical shocks have seemed commonplace and so it was something of a relief that 2024 passed without major global upset. 2024 was, however, notable for the numerous elections across the globe. In the UK the general election saw the return of the first Labour government since 2010 and in the US, Donald Trump returned to the White House for a second term. The macroeconomic environment was on the whole supportive, in particular central banks were successful in their efforts to tame excessive inflation. Against this backdrop equity markets did manage to generate good returns with technology companies continuing to lead the pack.
A detailed look at economies, rates and markets leads off the Portfolio Manager’s Report here and I recommend you read that for its detail and nuance.
That technology intertwines all our lives is indisputable and 2024 showed some incredible and sometimes disturbing examples of this. AI continues to dominate headlines – there is no doubt that this is an amazing technology with the potential to have a huge impact on society. However, we are in frontier territory and ultimate long-term winners in the AI race may not yet even exist.
What is certain is that technology is most often the ‘edge’ and that means a consistency of demand for products, services and ongoing innovation. It is that which keeps the sector so dazzlingly alive, along with an ecosystem of incomprehensibly talented inventors, scientists, engineers and entrepreneurs who work tirelessly towards the next generation of technology. This whilst most of us are simply trying to absorb the changes already in front of us!
Technology was once again a leader of stock market returns. Yes, global markets progressed strongly and would have netted investors around 20% for the year (source: FTSE World Index (total return)). However, the Company’s benchmark index would have brought you over 35% and of course, the dominance of the sector is such that a big part of the return from the global indices came from technology companies.
So, what are some of the underlying drivers of performance? The ‘Magnificent Seven’ (Amazon, Alphabet, Apple, Microsoft, Meta, Nvidia and Tesla) between them returned around 60% – a continued dominance at a headline level, although delving down there was a mix of extraordinary and more lacklustre returns. There were further strong returns seen from a wider range of technology companies this year and in terms of our own performance this meant that our Investment Manager was able to keep pace with our benchmark index without necessarily having to hold index weights in the largest companies. For details of the key stocks that either aided or held back our relative performance, please do read the details outlined in the Portfolio Manager’s Report here.
I am pleased to report that shareholders saw a second successive year of strong returns. The Company’s Net Asset Value (NAV) total return was 35.6%, while a narrowing in the discount to NAV resulted in a higher share price total return of 38.1%. The NAV return was marginally behind the 35.8% return of our benchmark, the Dow Jones World Technology Index (sterling adjusted, total return). Keeping pace with the benchmark without resorting to holding index weights in the largest companies is a ‘win’ in our view as it means we have broadly matched that performance without exposing shareholders to excessive concentration risk. We will not lose sight of the important part that risk management plays in the active portfolio management ‘equation’ and our focus on extracting value for shareholders from a wider, more balanced and diversified selection of companies than simply the mega-capitalisation stocks remains key for ATT. An example of this came in late January when some news flow from China relating to the AI application DeepSeek sent the price of many AI related stocks markedly lower on 27th – in particular Nvidia lost almost half-a-trillion USD market capitalisation and went from the world’s most valuable company to third on that day alone with a near 20% fall. Being active means that we did not hold an index weight in the stock (roughly 3.5% below). In the following days the stock recovered the majority of the fall as investors digested the situation.
As in previous years we have not proposed a dividend for the year ended 31 December 2024. It is common for technology companies not to pay a dividend, moreover the yields of those that do are typically small by comparison with non-technology companies.
The Company traded at an average discount of 10.4% over the period (low of 3.8% and high of 14.8%). It was encouraging to see the discount narrow from 10.3% at the start of the year to 8.6% at year end, nevertheless the Board is very aware that the discount could be a source of frustration to shareholders.
2024 marks a third successive year in which ATT has been at a discount, in contrast to the prior three years in which we typically traded at a premium to NAV. I have previously commented that the Board’s view is that the discount in recent times is the result of broad macroeconomic and structural challenges rather than company-specific concerns; this remains our view.
We have reached this conclusion by examining the pattern of discounts across the whole investment trust sector as well as those of our competitors. We are confident that the widening in discounts seen in the past three years has its roots in the tighter monetary conditions which followed the global surge in inflation in 2021. It is perhaps also worth keeping in mind that the UK equity market has for some time now remained ‘cheap’ by global standards.
All that said, what is the Board’s response to the persistent discount? Our focus is on three areas. First, we continue to use the powers available to us to buy back shares. Our policy in respect of buying back shares remains unchanged. We would consider buying back shares where the discount is consistently over 7% and we judge it appropriate to do so given the prevailing market backdrop. In the financial year we bought back an aggregate 9,015,787 shares at an average discount of 11.3% and total cost of £32.0m. Since the end of the financial year, up to 12 March 2025 we have repurchased a further 2,729,344 shares at an average discount of 10.3% and total cost of £11.5m. At the forthcoming AGM, the Board will once again seek authority to buy back up to 14.99% of the shares in issue. Any buy back of shares will only take place where we believe it to be beneficial to shareholders.
Second, our differentiated investment process was unchanged. We remain firmly of the view that ‘sticking to the knitting’ and executing our long established and successful investment approach provides a compelling basis for achieving long-term capital growth for shareholders.
Third, we continued with our activities to promote the Company and the attractive investment opportunity provided by the technology sector. Long-term demand generation is our favoured strategy in the face of a reticent market. Our promotional activities will cover a range of different channels and we will continue to make creative use of technology in our efforts to grow our shareholder base. ATT has an enviable track record which has been recognised by numerous awards, and I am confident that our promotional efforts in the next twelve months will help grow demand for our shares.
AI continues to be a headline theme within our portfolio. There is no doubt of the transformative power of this technology and the tremendous opportunities for those companies that are successful in developing or implementing AI. That said, AI’s frenetic development brings its own risks. Picking the winners in the AI race is challenging. We are becoming more and more aware of AI’s potential ‘dark side’, its scope to be misused whether it be in creating ‘deep fakes’, plagiarism or cyber-attacks. Moreover, the AI race is global in nature and yet there are few signs that effective transnational regulatory standards are close at hand.
In this context ATT’s focus is on balancing the opportunities and the risks. For the Investment Manager this translates into a strong focus on companies that are making money from the technology now (many aren’t), as well as those most likely to mature into that position. Our investment team carefully assesses risk on a stock-by-stock, ‘bottom-up’ basis when considering new additions to the portfolio and in their monitoring of existing holdings. For the Board, this is reflected in our perspective on governance. Consequentially we have met with external subject matter experts and we strongly support efforts to strengthen regulation surrounding the use of AI. In my view, our focus on governance, risk management and the differentiated investment approach previously discussed are distinctive features of our actively-managed investment trust structure.
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 fallen to 0.64% (2023: 0.70%). I am pleased to report that the Company has the lowest OCF within its AIC peer group (Technology & Technology Innovation).
The OCF excludes any performance fee due to the Investment Manager. The performance fee is subject to various performance conditions which were not met in 2024 and as a consequence no performance fee was earned. The various performance conditions are set out in detail in the Directors’ Report here.
In 2024 the Board visited our Investment Manager in California. This is a key part of our governance programme which we aim to undertake once every two years. We completed a deep-dive analysis of the investment process, portfolio and the investment team as part of our regular due diligence. We also met with a sample of our portfolio companies which are located in the area and these meetings certainly reinforced the Board’s view that the technology sector has tremendous potential for long term growth.
As previously reported, at the conclusion of the 2025 AGM Elisabeth Scott will step down from the Board, having served since 2015. We thank Elisabeth for her significant contribution to the Company’s development over the past ten years and her part in its considerable growth over that time.
Although outside of the reporting period, we are pleased to announce the appointment of Lucy Costa Duarte as a non-executive Director on 1 January 2025. Lucy also joined the Audit and Risk, Management Engagement, Remuneration and Nomination Committees. Lucy brings a wealth of marketing and investor relations experience, and we are therefore delighted that she has joined the Board.
This year’s AGM will be held on 23 April 2025 at 2.30pm. The full Notice of Meeting can be found here. Full details of the special business to be considered at the AGM can be found here.
As with 2024, the AGM will be a hybrid meeting, meaning shareholders can either attend physically or online. We strongly encourage all shareholders to submit their votes by the deadline of 17 April 2025 as detailed in the Notice of Meeting here. Those shareholders attending virtually will be able to view the AGM and submit questions electronically.
If you are an ATT shareholder through a platform which offers the opportunity to vote, then we encourage you to take advantage of those arrangements to cast your votes and thus have your say in the running of your Company. It is also possible for you to attend the AGM: all you need to do is to request a ‘Letter of Representation’ or click ‘Attend meeting’ on the voting options page. We also commend and support the Association of Investment Companies’ (AIC) efforts to further improve the enfranchisement of retail shareholders who hold their shares through an investment platform or other nominee service, with their newly launched “My share, my vote” campaign, targeting a change in company law. You can view details of this campaign here and follow instructions on how to cast your vote via platforms here.
The Board encourages shareholders to attend the AGM if possible. A presentation by the lead 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.
It remains as difficult as ever to predict the macroeconomic direction of travel for the year ahead. What is probably not in doubt is that shocks to the system and associated volatility continue to be significant risks; even as I write, during the early weeks of the new Trump administration, talk of tariffs and trade wars are causing unease.
That said there is no doubt that change within the technology sector will continue at pace. Our job is more nuanced though – decoding how this will translate into business growth and profitability for companies – and so ultimately into their share prices. The technology sector can be prone to the wildest swings in sentiment based on short term news flow and whilst those companies at the forefront of growth undoubtedly deserve to trade on higher multiples, we are seeing more instances in which valuations have become overextended. Against this background a sense of balance is needed. We truly believe in the long-term potential of the sector, however in the short term it feels there could be an increasing risk of market corrections and setbacks along the way.
At ATT we remain focused on the task at hand: creating a portfolio which we believe has the strongest potential for growth over the long term, for those shareholders who entrust us with their money.
Tim ScholefieldChairman12 March 2025
