Investing in secular trends
In the ever-evolving landscape of financial markets, the technology sector continues to stand out for its tremendous potential, continuously innovating new areas for investors to explore. Here, we take a look at the Allianz Technology Trust (ATT) as a potential way for adventurous investors to access this exciting opportunity…
Key takeaways
- ATT is managed by Mike Siedenberg, who has been successfully navigating the technology sector since 2001.
- Mike identifies sustainable trends, such as artificial intelligence, cloud computing, cybersecurity and electric vehicles, that can drive innovation and growth in the years ahead.
- The team’s location in San Francisco gives them a potential edge in finding the real long-term winners within these trends.
In the ever-evolving landscape of financial markets, the technology sector continues to stand out for its tremendous potential. Technological innovation lies at the heart of all human progress and the world’s increasing reliance on technology continues to create exciting new opportunities for investors to consider. Allianz Technology Trust has an excellent long-term track record, crafted by identifying and investing in the winners within sustainable secular themes that have the capacity to drive innovation and growth for many years into the future.
The trust is managed by Mike Seidenberg, who has been successfully navigating the technology sector since 2001. He firmly believes that investing in secular trends can lead to remarkable returns over time. “Secular themes tend to play out for much longer and stronger than investors expect,” he explains. “If you can identify a strong secular trend, finding the right companies within it and backing them for the long term has proven to be a successful strategy for me over the years.”
Mike and his team aim to do this by taking a holistic approach to assessing the investment landscape. He likens this to meticulously building an investment mosaic, piece by piece over time. This approach has allowed the team to identify several long-term structural trends and invest in the high potential companies they expect to benefit from those themes in the years ahead. As a result, the Allianz Technology Trust portfolio currently has good exposure to secular trends such as artificial intelligence, cloud-based services, cybersecurity and electric vehicles.
Artificial intelligence
Artificial intelligence (AI) is an excellent example of these themes. As a result of recent breakthroughs, generative AI1 is rapidly reshaping how entire industries operate, and driving innovation at an unprecedented pace. As companies move into the intelligence era, AI has the potential to become truly game-changing.
“We are in the early days of the generative AI revolution and there is a lot of learning to be done,” Mike articulates. “Some people are fearful of job losses, but on balance it should be seen as more of an opportunity than a threat. For many people, AI is probably an enhancement to their professional lives, because it can make many tasks much easier, particularly in knowledge-based industries. From an investment perspective, our process aims to identify the long-term winners and ensure that we have exposure to those winners in some capacity.”
Cloud computing / Software-as-a-Service
The continued growth of the cloud and the ‘Software-as-a-Service’ (SaaS) businesses that harness its power, is another strong secular trend that the team is backing. As businesses leave behind their legacy technology infrastructure and adopt cloud-based solutions, they gain flexibility and opportunities for improved productivity at a significantly reduced cost. “The shift to the cloud continues to gain momentum, but it is still only about 18% penetrated,” Mike explains, emphasising the potential for continued future growth. “It makes so much sense for customers to embrace cloud-based solutions, effectively turning fixed costs into variable ones. The opportunity for SaaS providers that can effectively demonstrate the productivity enhancements they offer to their customers is vast.”
Cybersecurity
Cybersecurity is another secular theme backed by the trust. The rising prevalence of cyber-attacks recently led to President Biden identifying cybersecurity as a core national security challenge for the US, which underscores the opportunity for businesses that can help protect corporates and consumers from increasingly sophisticated threats.
Electric vehicles
The fourth secular theme is the continued emergence of electric vehicles (EVs). The global shift towards electric vehicles presents a multitude of investment opportunities within the EV ecosystem. There is significantly more silicon involved in electric vehicles than those powered by traditional engines, which suggests significant growth potential could lie ahead for those firms involved with the manufacture of the chips required as the shift towards electric vehicles continues to gain momentum.
The power of convergence
Although these themes are each powerful in their own right, there are signs that they are increasingly interacting in a way that potentially accelerates their future growth. For example, cloud technology enables both artificial intelligence and cybersecurity, while the breakthroughs we have recently seen in generative AI are beginning to have an impact on how cybersecurity businesses deliver solutions to their customers. This convergence creates a powerful force, with new innovations being born from existing ones, opening up further opportunities for productivity enhancements and long-term investment growth.
Location, location, location
Identifying the right secular trends is only part of the challenge. The key to unlocking their potential is finding the businesses within them that have the ability to capture the opportunity that lies ahead. For Mike and his team, their location is crucial in this regard. Headquartered in San Francisco and with offices in key locations around the world, the team has close links with Silicon Valley and other important global innovation hubs. Mike elaborates:
“Living and working in the Bay Area, you cannot help but be immersed in technology and innovation in some way. Our location provides us with an opportunity to stay ahead of the crowd by identifying the best new ideas earlier. As the pace of technological change continues to accelerate, it’s more important than ever that we keep our fingers on the pulse of innovation.”
Conclusion
The technology sector can be volatile, as 2022 clearly demonstrated. As a result, it is perhaps most suited for adventurous investors that are prepared for potential short-term losses. Those investors that have been able to tolerate the volatility and have stayed invested for the long run have historically been well rewarded. The technology sector has delivered significant long-term outperformance and spawned some of the most successful businesses ever seen.
Meanwhile, last year’s sector sell-off leaves many starting valuations much more reasonable, particularly when considering the sector’s excellent long-term growth prospects. This may make the current environment an exceptional time to be considering investment in the sector. Mike and the rest of the team behind Allianz Technology Trust certainly believe so. And, with the exciting themes of cloud computing, artificial intelligence, cybersecurity and electric vehicles well represented within the trust’s portfolio, they are enthusiastic about the opportunity that lies ahead.
1 Generative AI differs from earlier forms of AI that simply follow instructions, because it can learn from existing data to generate new, original content.
