Annual Financial Report

RNS Number : 1508G

Allianz Technology Trust PLC

13 March 2020

 

For immediate release     

13 March 2020

ALLIANZ TECHNOLOGY TRUST PLC

LEI: 549300OMDPMJU23SSH75

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

The following comprises extracts from the Company's Annual Financial Report ("AFR") for the period ended 31 December 2019. The full AFR is available to be viewed on or downloaded from the company's website at www.allianztechnologytrust.com. Copies will be posted to shareholders shortly.

For further information contact:

Robert Jeens    Stephanie Carbonneil  Eleanor Emuss

Chairman    Head of Investment Trusts  Company Secretary

Telephone:

020 3246 7405    020 3246 7539  020 3246 7405

MANAGEMENT REPORT

Chairman's Statement

Strong investment returns defy global economy headwinds

The year to 31 December 2019 was a period of strong returns for almost all equity markets around the world, in spite of the global economy shifting into reverse gear and geopolitical tensions continuing to prevail. It was a year dominated by the prolonged - and thus far unresolved - trade dispute between China and the United States which hit manufacturing and corporate earnings around the world. However, despite this complicated backdrop, global stock markets delivered unexpectedly strong returns, with the technology sector shining brightest of all and outperforming global stock markets by some considerable distance.

Although the Company's overall performance was positive, 2019 was very much 'a tale of two halves'. Over the first half, to 30 June 2019, absolute and comparative performance was impressive, boosted by careful stock selection, as we reported in the half yearly financial report. Indeed, at that half-way stage, the Company was significantly outperforming its benchmark index, the Dow Jones World Technology Index (sterling adjusted, total return) and thus continuing the robust direction of travel witnessed in 2018. Jumping forward six months, whilst performance remained strong the Company lost ground to its benchmark and ended the year lagging it by some considerable distance. For the year to 31 December 2019, Net Asset Value (NAV) per share increased by a pleasing 28.8% but this compared with a rise of 39.0% for the benchmark.

In order to explain the Company's relative performance over the year, it is important to flag that ours is a high conviction concentrated portfolio with attractive growth and valuation characteristics that differs markedly from the benchmark. As such, we have a large overweight position to smaller and mid-cap higher growth stocks and a large underweight position in some of the very largest technology companies (which grew even larger over the course of 2019). This positioning has driven the Company's sustained outperformance over recent years but is the key reason for underperformance this time around, as explained in the Investment Managers' Review, on pages 32 to 40.

Whilst any period of underperformance is disappointing, the Board is reassured by the Manager's demonstrable expertise over many years and by the Company's excellent medium to longer term track record. And, as we enter a new decade, it is worth remembering that not only has the technology sector delivered outstanding cumulative returns over the last ten years, but your Company has also been one of the top-performing of all UK-listed investment trusts over the same timeframe.

Over the year, the market price of the Company's shares rose by 35.0%, from 1220p to 1647p as at 31 December 2019, moving from a discount to NAV of 5.0% to a discount of 0.4%. The share price typically traded at a small discount or small premium to NAV throughout most of the reporting period. Strong investment returns, combined with share issuance (as described below), saw shareholders' funds increasing by over £153.3 million to £583.4 million (31 December 2018: £430.1 million).

No dividend is proposed for the year ended 31 December 2019 (2018: nil). Given the nature of the Company's investments and its stated objective to achieve long-term capital growth the Board considers it unlikely that any dividend will be declared in the near future. It should be noted that all the Company's expenses continue to be charged to income and not capital, as set out in the accounting polices found in the financial statements.

Your Board regularly considers the use of borrowing and gearing. Although we have this flexibility, to date our assessment has been not to take on this additional risk.

Investment Managers' Review

Your Company is managed from San Francisco by an experienced portfolio management team.  This year's performance is explored in depth on pages 34 to 40 where the Manager explains the reasons behind the Technology sector's momentum in 2019. They also consider how the global economy's marked slowdown, geopolitical manoeuvrings and the gloomy outlook for the corporate sector have impacted on the Company's high conviction portfolio. Looking ahead, the Manager reviews the prospects for technology and why good stock picking remains fundamental as the Company continues its search for (1) major technology growth trends ahead of the crowd and (2) stocks within tech sub-sectors that offer genuine, long-term growth potential.

How do we compare with our peers and other indices?

The table below compares the Company to its technology fund peers and related indices. You will note that the Company's performance over all timeframes has been robust, particularly over longer periods.

% change	1 year	3 years	5 years	10 years
ATT NAV	28.8	96.9	176.3	470.9
Dow Jones World Technology Index (sterling adjusted)	39.0	79.0	161.6	381.5
MSCI World Technology Index (total return)	42.4	87.4	178.6	436.6
Russell MidCap Technology Index	18.1	65.1	147.9	390.8
Morningstar Global Technology Sector	29.8	56.8	118.9	257.4

Source: Allianz Global Investors in GBP as at 31 December 2019

The table below provides a comparison with the broader UK and world equity indices which many

investors will use when reviewing the performance of their individual portfolio.

Source: AllianzGI in sterling as at 31 December 2019.

The table below provides a comparison with the broader UK and world equity indices which many investors will use when reviewing the performance of their individual portfolios.

% change	1 year	3 years	5 years	10 years
ATT NAV	28.8	96.9	176.3	470.9
FTSE All Share Index (total return)	19.2	22.0	43.8	118.3
FTSE World Index (total return)	22.8	34.9	82.4	204.3

Source: AllianzGI in GBP as at 31 December 2019

The Board continues to pay close attention to the Company's performance position against the wider universe of open ended funds, closed ended funds and exchange traded funds. The funds included within the Morningstar Global Technology Sector - Equity (Morningstar) category has increased considerably during 2019 and the performance of your Company is very positive for the 3, 5 and 10 years investment periods.

	1 year	3 years	5 years	10 years
Peer Group Ranking vs Morningstar	59/98	3/69	4/55	1/51

Growing the Company

Your Board remains committed to growing the Company. In addition to delivering capital growth per share, increasing the total value of the Company should make the Company more attractive to a wider range of investors through improved secondary market liquidity and marketability; it also enables the Company's fixed expenses to be spread over a larger asset base, to the benefit of all shareholders.

Each year the Board considers carefully what level of expenditure should be incurred to promote the growth of the Company, recognising that the benefit of much marketing-related expenditure is cumulative and hence that returns are not easily measured within each financial year. Over recent years the Board has modestly increased marketing expenditure on a strongly focused basis and it is very pleasing to note the heightened profile the Company has achieved. Awareness has grown on the back of the Company's long-term performance record as well as the numerous (and prestigious) awards and positive press comment that this performance has delivered.

Creating demand for the Company's shares

Our communications programme continues to create significant demand for the Company's shares, particularly through online investment trading platforms where demand has increased steadily in recent years. The Company's shares have become ever more popular with retail investors keen to access the growth potential of the fast-moving technology sector and who believe that Allianz Technology Trust provides them with a cost-effective means of doing so.

The Company featured in the top twenty most viewed investment trusts on the Association of Investment Companies (AIC) website for 2019. It was also amongst the top ten most bought investment trusts through the Interactive Investor platform over the same 12-month period.

The marketing programme includes targeted advertising, investor events (often in association with trading platform providers) and substantial interaction with national and industry journalists, financial advisers and wealth managers, all timed to coincide with UK visits made by Walter Price and other members of the investment management team. In 2019, we continued recording regular podcasts, providing insights and outlook views for those interested in the technology sector. This content can be accessed through iTunes or the Company's website (www.allianztechnologytrust.com), managed by Allianz Global Investors.

Investment Insights from Silicon Valley

Shareholders are reminded that, via the website, they can register to receive monthly performance updates via email as well as regular 'Investment Insights from Silicon Valley' e-newsletters from the Company's Investment Manager. If you would like to receive our targeted communications, you can opt in via the website - simply click on 'Sign up' on the home page.

More award accolades bestowed

Awards success is helpful in raising awareness of your Company's specialist investment remit. Shareholders will know that Allianz Technology Trust has received numerous high profile and prestigious awards in recent   years. These include the Investment Week Investment Company of the Year Award, Specialist category in four of the last five years. This award is coveted as it recognises excellence in closed-ended fund management and highlights the Company's long term performance record. The judging panel was made up of some of the UK's leading researchers and investors in investment trusts and closed-ended companies, as well as several senior board members with many years' experience in the industry.

In September 2019, the Company was again recognised by Investors Chronicle who named it a 'Top 100 Fund' for the seventh consecutive year.

Earlier in 2019, the Company was named Best Large Trust at the Money Observer Investment Trust Awards. The publication noted that ATT had achieved the highest returns among 2019's award-winners, calling it "a worthy winner of our most prestigious sector award".

These awards are valued accolades as they reflect the Company's long-term investment performance track record and help create sustained and ongoing demand for the Company's shares.

Ongoing issuance of shares

As stated earlier, the Board is very keen to increase the number of shares in issue as a means of growing the Company. However, where there is market volatility the Board will also consider buying back shares when the discount is over 7% and all other factors align. The Board considers carefully the parameters which should apply to both the issuance of shares and the buy-back of shares from the market and will only proceed when the action is in the best interests of shareholders. No shares were bought back during the reporting year.

Within the year the Company responded to increased demand by issuing a total of 1,795,000 new shares, at an average premium to NAV of 1%, for a total of £29.8 million. So far in 2020 the Company has issued 425,000 new shares, at an average premium of 1%, for a total of £8.09 million.

Our continued focus on the costs of running the Company

Your Board continues to works hard to ensure that the costs of running the Company are both reasonable and competitive, whilst also recognising that Allianz Technology Trust is a specialist vehicle investing in a

sector that rewards judicious, active management.

The Ongoing Charges Figure (OCF) is calculated by dividing operating expenses by the average NAV. The OCF for the year under review was 0.88% (2018 annualised OCF: 0.93%). The OCF excludes any performance fee to which the Investment Manager may be entitled if the Company's NAV per share outperforms its benchmark (and is explained in full under Financial Statements, Note 2 on page 97). As a result of the Company's underperformance of its benchmark index in the year to 31 December 2019, no performance fee was earned by the Investment Manager for this period (2018: £5,162,649). Although actual performance was strong over the year, the Investment Management Agreement is in place to encourage, recognise and reward relative outperformance.  Your Board is satisfied that the performance fee structure is an appropriate incentive mechanism and is confident in the Managers' ability to deliver outperformance in future review periods, just as they have done in the past.

The Company's market capitalisation ended the year at £580.9m. Throughout the year, market cap exceeded £400 million which is significant because of the Company's tiered management fee structure with Allianz Global Investors. Under this arrangement, the standard fee rate of 0.8% of market capitalisation reduces to 0.6% for any amount of market capitalisation in excess of £400 million. The Board is pleased to inform you that as of 1 January 2020, a new tier to the management fee has been agreed. This is set at 0.8% for any market capitalisation up to £400m, 0.6% for any market capitalisation between £400m and £1 billion, and 0.5% for any market capitalisation over £1 billion.

Board matters

Your Company's Investment Managers continue to take advantage of being based in San Francisco, close to where many of the world's technology companies are headquartered. The team has close and regular contact with the growth companies they hold as well as those that have been identified for future investment. As a Board we recognise the advantage the Company gains by being within touching distance of Silicon Valley's gateway, whilst recognising the constraints imposed by the geographical distance and time zone difference between London and San Francisco.

Most of the Company's Board meetings are held in London, but we schedule a periodic visit to San Francisco. The most recent San Francisco Board meeting was at the end of September/beginning of October 2019 and the next visit is planned for Autumn 2021. The frequency of these visits recognises the importance of good communications and close working relationships between the Manager and the Board, but also the costs and time commitment of such trips.

The United Kingdom formally left the European Union on 31 January this year and has moved into a transitional period that is scheduled to end on 31 December 2020. Other than the possible impact on the Sterling exchange rate (as already seen in the aftermath of last December's general election), this change is not a material factor to the global investment proposition offered by the Company. The Company's AIFM, Allianz Global Investors GmbH (AllianzGI GmbH) is incorporated in Germany and it currently provides cross-border management services to the Company using the AIFMD management passport. The German regulator BaFin and the FCA in the UK reached a formal understanding so that AllianzGI GmbH can continue to operate as the AIFM, and is regulated in the UK by the FCA, in a three-year transition period. More detail can be found on page 59.

An internally facilitated Board and Manager performance appraisal process was conducted towards the end of the year. This confirmed that the current Board is working in an effective manner with no significant shortcomings identified

In accordance with the new AIC Code, all directors will now be proposed for re-election annually.

Board changes

In the Company's interim report, we confirmed our earlier announcement that Richard Holway had decided to step down from the Board in accordance with the Board's agreed succession plan.  Richard retired from the Board on 31 December 2019. I and my fellow board members would once more like to record our thanks to Richard for his excellent contribution over his 12-year tenure and we wish him all the very best for the future.

We are delighted that Neeta Patel joined our Board on 1 September 2019, bringing with her a wealth of experience of evolving technologies. She is currently the Chief Executive Officer of the Centre for Entrepreneurs, a board advisor for Tech London Advocates and an entrepreneur mentorin-residence at London Business School. She is also a member of the newly appointed advisory board at City Ventures, the entrepreneurship hub at City University, London and a non-executive director for various start-ups. Neeta has already proven herself to be a valuable addition to the Board and I look forward to introducing her to shareholders at the Company's forthcoming Annual General Meeting in May where, in accordance with the Articles of Association, she will be standing for election.

Continuation Vote

In accordance with our Articles of Association we are required to propose a continuation vote every five years. The most recent continuation vote was proposed and passed by Shareholders at the 2016 AGM. Shareholders will have a further opportunity to vote on the continuation of the Company at the AGM to be held in 2021.

Outlook

The beginning of the new decade provides us with an opportunity to reflect on the technology sector's success story over the last ten years and, of course, the exceptional and top-performing investment performance your Company's investment managers have delivered. Whilst we are all aware that past performance is no guide to future returns, our thoughts now turn to the future and what the new decade could hold. Can technology stocks deliver success on a similar scale, when stock market sectors typically come and go out of fashion over the course of time? Of course, nobody has a perfect vison of what lies ahead but we are reassured by the Manager's first-hand knowledge and long track record. The team continues to believe that exciting opportunities to identify disciplined and well-run tech companies lie ahead.

Geopolitics and macroeconomic uncertainties will continue to throw up obstacles along the way. Last year, the US-China trade wars triggered clouds of uncertainty and already, at this early stage of 2020, we have witnessed challenges which have unnerved markets. In the very first days of 2020, new tension between the US and Iran unsettled investors and, more recently, the focus of concern has been the spread of the coronavirus; this global public health crisis is evolving day by day and, first and foremost, our concerns relate to the loss of human life and how to contain the spread of the virus. From an investment perspective, however, this dynamic situation poses a very real threat to the hopes of recovery in the global economy. The end of February and beginning of March were very painful weeks for stock markets, with global share prices tumbling over successive days.   We will continue to monitor the situation but, in the face of this and other future uncertainties, your Board is reassured by the Manager's proven ability to carefully balance risks and opportunities, leveraging industry experience and emphasising individual stock selection.

Technology is a 21st century growth story and, with every year, its reach and influence grows. It disrupts old industries and moves into different parts of our lives as it tightens its grip on the global economy. This 'bubble' is not about to burst any time soon but investing in the sector is not for the faint-hearted and there will always be examples of technology stocks that do not deliver on their promised growth trajectory. With this in mind, we continue to believe that a diversified technology fund like ours has considerable advantages, since the portfolio offers risk-diversification by investing in a basket of stocks across a range of technology sub-sectors. The team continues to believe that a carefully chosen portfolio of technology stocks can continue to deliver positive returns over the long term.

Annual General Meeting

The AGM will be held at the new premises of Grocers' Hall Princes Street London EC2R 8AD, on 19 May 2020 at 12 noon. I look forward to welcoming and meeting those shareholders who can attend. For those unable to attend in person, the AGM investment presentation will be filmed and made available on the Company's website as soon as practicable after the event.

Your vote counts

Your Board takes very seriously its responsibility for safeguarding the interests of all Shareholders. We are keen to remind you that being a Shareholder gives you the right to vote on issues that affect the Company, such as director elections and any amendments to policy. Irrespective of whether you can attend the AGM, Shareholders are encouraged to make your voices heard by voting on ordinary and special business matters, as detailed on the form of proxy enclosed with this report.

Robert Jeens

Chairman

13 March 2020

Investment Managers' Review

Financial Year to 31 December 2019

It was a year of contrasts for the technology sector. Although aggregate performance was positive, there were two distinct phases. The first favoured high growth companies; the second

saw investors shift to more economically sensitive areas. One trend persisted, however - the largest stocks grew even larger as flows into index funds influenced pricing.

Economic backdrop

The first part of the year was dominated by concerns on trade tensions and declining economic data. Global growth in 2019 recorded its weakest pace since the global financial crisis a decade ago1 and this was particularly marked in the first half of the year, prompting central banks around the world to take action.

Manufacturing was the notable weak spot as the US/China trade war weighed on activity.  The weakness of manufacturing behemoth Germany was emblematic of a wider malaise, with key industries under pressure and investment levels weak. For Germany, the dominant auto sector saw a perfect storm of regulatory change, emissions standards and declining consumer demand. Both China and the US saw PMI data fall below the 50-mark that indicates contraction.

In the manufacturing sector and beyond, global geopolitical uncertainty prompted caution among corporate decision makers.  Firms proved reluctant to undertake long term spending projects, with purchases of machinery and equipment decelerating.  Nevertheless, the digitisation trend remained largely intact as firms saw the financial and competitive advantages of selective investment in technology.

In the face of these gloomier signals from the global economy, monetary policy remained accommodative. The Federal Reserve changed course during 2019, initially halting its ambitions to normalise rates; and then implementing quarter-point cuts in July, September and October. In its December meeting, Fed chair Jerome Powell signalled rates would now stay on hold throughout 2020.

Towards the end of the year, there were signs that central bank measures were having an effect with green shoots of recovery emerging.  Loose monetary policy helped compensate for the waning impact of President Trump's tax cuts. As importantly, expectations of a US/ China trade deal revived in September. With the prospect of a deal came higher expectations for global growth.

Markets

Overall, it was a good year for the technology sector. The tech-heavy Nasdaq outpaced the S&P 500 and Dow Jones Industrial indices.  Our benchmark index, the Dow Jones World Technology Index (sterling adjusted, total return), delivered 39.0%. However, the gains were not universally distributed, with the lion's share of fund flows moving into the largest companies in the sector.

In the early part of the year, it was the higher growth stocks that made progress. Amazon, for example, saw its share price rise from $1,656 a share to a peak of over $2,000 in July. It was a familiar story. Fearful of a downturn in global economic growth, investors sought the relative safety of reliable earnings and a compelling growth story.

However, there was a discernible switch in sentiment from September onwards. This benefited cyclical and value companies at the expense of higher growth companies. Previously unloved areas such as hardware and semiconductors performed well.

Flows into index funds increased over the year and this had an influence on pricing. The largest stocks in the index saw significant multiple expansion. In some cases, this came in spite of weaker earnings.

This was also a year in which investors grew sceptical of the valuations in private equity.  A number of high profile companies came to market, but failed to deliver for optimistic investors. The valuation gap between public and private markets was exposed.

There remain, nevertheless, some notable secular trends and companies exposed to those trends did well. In particular, the digitization trend continued to show momentum. Softwareas- a-service providers had a good year. This rippled out into the semiconductor industry, with specialist cloud chip makers, such as Advanced Micro Devices also benefiting from the trend.

Technology developments

IPOs

It was the year that a number of high-profile technology unicorns finally came to market, including Lyft, Pinterest and Uber. However, it also exposed the ambitious valuations set for many of these companies. As a result, in spite of good earnings performance, the share prices were weak. A high-profile casualty was WeWork, which pulled its flotation after struggling to attract investors, who proved disinclined to support a technology-type valuation for a property company.

Apple's iPhone 11 range

The latest iPhone incarnation brought more cameras and longer-lasting batteries. 5G was notably absent, despite rivals introducing compatible smartphones. It was generally favourably reviewed and early reports suggested sales may be better than expected across the US and Western Europe. However, this has yet to be reflected in Apple's results.

Security breaches and technical glitches at Facebook

It was a year of disruption for Facebook. Alongside the usual hum of regulatory threats, it also experienced security breaches and technical glitches. March saw the group experience 14 hours of disruption, its "most severe outage" to date. May saw WhatsApp admit that the app had been used to install surveillance software on the phones of around 1,400 users. There were further technical problems in July, with users unable to upload photos and videos.

Streaming wars

Netflix saw its streaming dominance challenged as, among others, Disney Plus launched a streaming service, giving access to more than 500 movies and 7,500 TV episodes.

Microsoft's revival

Microsoft CEO Satya Nadella was the Financial Times' person of the year' for 2019, praised for his 'stunning wealth creation'. His venture into cloud computing has been a resounding success. The company scored a coup when it won the high-profile contract to provide the Pentagon with cloud computing and artificial intelligence services, pipping hotly tipped Amazon to the prize. The deal could be worth as much as $10bn (£7.7bn) over time and presents a good platform to pitch the firm's Azure services to other government departments and private companies.

Performance

It was a strong year for the Company in absolute terms, with our net asset value rising 28.8%. However, we lagged our benchmark by 10.2%. Although our investments are not driven by the weightings of individual companies in the benchmark, we are aware of the benchmark and use it to measure the success of our performance. As such, this was disappointing, but there were clear reasons for the discrepancy.

The Company had long favoured the mid cap area, believing this to be the sweet spot for innovation and growth. As a result, we are typically underweight the mega-caps. With this in mind, the most dramatic detractor from overall performance this year was our 10.1% underweight to Apple. Apple gained around 82% over the year and we were considerably underweight.

The dominance of these large companies continues to prove a challenge for technology investors. On the one hand, they have become huge parts of the index, so their performance tends to dominate relative performance for the Company, either good or bad. At the same time, their share prices are influenced by passive flows. This year saw a significant rise in Apple's share price while earnings were lacklustre.  Microsoft was another major detractor, for similar reasons. While we held an average weight of 5.3% in Microsoft and believe it is a business with attractive qualities, the benchmark weighting is 12%. From a risk management point of view, this would be a lot to hold in an individual stock and not the size of position we favour. As it stands, we keep our conviction approach even if it means there will be moments of pain.

Our strongest performers over the year were clustered into the software-as-a-service sector.  Corporate digitisation continues apace and these stocks did well over the year, beating earnings expectations and improving and diversifying their businesses. Otka, Paycom Software and Teradyne were three of the most significant contributors to overall performance.

Otka had another strong year as cloud security software saw widespread adoption. It is built on top of the Amazon web services cloud, helping companies manage employee access to corporate applications. The company not only exceeded market expectations on sales, which hit $141 million, representing 49% growth year over year, but also raised its outlook for the year ahead.

We opened our position in Teradyne in 2017 and it has subsequently proved a strong performer for the trust. Alongside its core business, which is semiconductor testing, it makes small robots, nicknamed 'co-bots'. They are not designed to replace humans, but to remove some repetitive tasks - attaching two components together, for example. The robots are both flexible and trainable. The company beat earnings expectations for the year, as ongoing demand for 5G infrastructure and Flash memory testing drove Semiconductor Test performance.

Semiconductor specialism became a theme over the year as demand for bespoke semiconductors grew. Artificial intelligence, for example, requires large capacity for data processing, which in turn requires high performance chips. Semiconductor companies had performed poorly for much of the year, but picked up in the final quarter and it was those that could meet specialist needs that led the way.

In the portfolio, this was seen in the strong relative performance of Taiwan Semiconductor, which we bought during the year, and Advanced Micro Devices (AMD). Apple continues to use Taiwan Semiconductor to produce chips for iPhones, while AMD is benefiting from the move to the cloud.  The trade war has been a headwind for the semiconductor sector, but this is more than reflected in valuations.

The trade war had an impact on technology in other ways, notably among the component makers. Companies such as Netapp and DXC had been facing weakening demands for their products anyway as companies moved to the cloud. They had been trying to transition to growth areas, in some cases successfully, but the slowdown in their legacy business was much faster than expected as companies grew increasingly disinclined to spend on existing infrastructure. For these groups, some resolution in the trade war will be welcome.

In general, we avoided many of the IPOs coming to market. While they were often exciting, high growth businesses, the valuations are simply too high and even if they deliver on expectations, it is difficult to see how the share prices can make significant headway. One exception was cybersecurity group Crowdstrike, in which we built a small position. We believe it has potential, but it was a detractor from performance over the year.

Outlook

Here, we focus on a single year in technology, but it is important to remember that technology's influence continues to grow, year after year. It disrupts more industries, from retail to autos, and on into financial services and beyond. Our universe expands each year, with exciting companies emerging and evolving.  Technology investment is about future-proofing your portfolio, ensuring you have tomorrow's winners rather than yesterday's.  

Walter Price

March 2020

Viability Statement

In accordance with the Corporate Governance provisions the Company is required to make a forward looking (longer term) Viability Statement. In order to do this the Board has considered the appetite for a technology investment trust against the current market backdrop and has formally assessed the prospects for the Company over a period of four years. The Board believes that the period of four years continues to be appropriate, as this time frame incorporates the Company's next five-year continuation vote, which the Board expects shareholders to pass when proposed at the AGM in 2021. In order to assess the prospects for the Company the Board has considered:

-  The investment objective and strategy taking into account recent, past and potential performance against both the benchmark, other indices of note and peers;

-  The financial position of the Company, which does not currently utilise gearing in any form but does maintain a portfolio of, in the main, non-income bearing investments;

-  The liquidity of the portfolio and the ability to liquidate the portfolio on the failure of a continuation vote;

-  The ever increasing level of technology adopted by both individuals and corporations alike;

-  The inherent risks in such technology both in terms of speed of advancement but also potential catastrophe with the growth of cyber fraud; and

-  The principal risks faced by the Company as outlined below.

The Board is fully aware that the world of technology is constantly moving and growing and the perceived picture of technology now and in four years' time is potentially very different. Based on the results of the formal assessment the Board believes it is reasonable to expect that the Company will continue in operation and meet its liabilities for the period of four years under direct review.

Principal & Emerging Risks and Uncertainties

The principal risks identified by the Board are set out in the table overleaf, together with information about the actions taken to mitigate these risks. A more detailed version of this table in the form of a Risk Map and Controls document is reviewed in full and updated by the Audit Committee and Board at least twice yearly. Individual, including emerging risks and threats to reputation, are considered by the Board in further detail depending on the market situation and a high-level review of all known risks faced by the Company is considered at every Board meeting. The principal risks and uncertainties faced by the Company relate to the nature of its objectives and strategy as an investment company and the markets in which it operates.

Description	Mitigation
InvestmentStrategyRisk The Company's NAV may be adversely affected by the Investment Manager's inappropriate allocation of funds to particular sub-sectors of the technology market and/or to the selection of individual stocks that fail to perform satisfactorily, leading to poor investment performance in absolute terms and/ or against the benchmark. T echnology SectorRisk The technology sector is characterised by rapid change. New and disruptive technologies can place competitive pressures on established companies and business models, and technology stocks may experience greater price volatility than securities in some slower changing market sectors. Cyber Risk The Company may be at risk of cyber attacks which may result in the loss of sensitive information or disruption to the business.	The Investment Manager has responsibility for sectoral weighting and for individual stock picking, having taken due account of Investment Objectives and Controls that are agreed with the Board from time to time and regularly reviewed. These seek, inter alia, to ensure that the portfolio is diversified and that its risk profile is appropriate. The Board reviews investment performance, including a detailed attribution analysis comparing performance against the benchmark, at each Board meeting. At such meetings, the Investment Manager reports on major developments and changes in technology market sectors and also highlights issues relating to individual securities.  The portfolio is diversified. The operations of the Company are carried out by the Investment Manager and various third party service providers. All service providers report to the Board on operational issues including cyber risks and the controls in place to capture potential attacks. The Board meets with the AllianzGI Head of Information Security and is satisfied that appropriate controls are in place. See Operational Risk below.
Market Risk The Company's NAV may be adversely affected by a general decline in the valuation of listed securities and/or adverse market sentiment towards the technology sector in particular. Although the Company has a portfolio that is diversified by company size, sector and geography its principal focus is on companies with high growth potential in the mid-size ranges of capitalisation. The shares of these companies may be perceived as being at the higher end of the risk spectrum, leading to a lack of interest in the Company's shares in some market conditions.	The Board and the Investment Manager monitor stock market movements and may consider hedging, gearing or other strategies to respond to particular market conditions. The Investment Manager maintains regular contact with shareholders to discuss performance and expectations and to convey the belief of the Board and the Investment Manager that superior returns can be generated from investment in carefully selected companies that are well managed, financially strong and focused on those segments of the technology market where disruptive change is occurring.
Currency Risk A high proportion of the Company's assets is likely to be held in securities that are denominated in US Dollars, whilst its accounts are maintained in Sterling.  Movements in foreign exchange rates affect the performance of the Investment Portfolio and creates a risk for shareholders.	The Board monitors currency movements and determines hedging policy as appropriate. The Board does not currently seek to hedge this foreign currency risk.
FinancialandLiquidityRisk The financial risks to the Company and the controls in place to manage these risks are disclosed in detail in Note 15 beginning on page 102.	Financialandliquidityreportsareprovidedtoandconsidered bytheBoardonaregularbasis.
OperationalRisk Disruptiontoorthefailureofthesystemsandprocessesutilised bytheInvestmentManagerorotherthirdpartyserviceproviders. This encompasses disruption or failure caused by cyber crime and covers dealing,tradeprocessing,administrativeservices, financialandother operational functions.	TheBoardreceivesregularreportsfromtheInvestment Managerandthirdpartiesoninternalcontrolsincluding reportsonmonitoringvisitscarriedoutbytheDepositaryon behalfoftheCompany.TheBoardhasfurtherconsidered theincreasedriskofcyber-attacksandhasreceivedreports andassurancefromthe InvestmentManagerregardingthe controls in place.
Emerging Risk Brexit : Whilst the "Brexit deal" has been signed and the UK has left the EU, there is still a risk that the UK and EU do not negotiate a suitable trade deal, by the end of 2020, which creates uncertainty and disruption within the market. US-China Trade War : Risk that China's economy will be damaged by trade frictions and the emerging "technology cold war" with the US, preventing growth in consumption and services sectors. Cyber Security : The constant and evolving nature of cyber threats means that there are risks that the Company could be exposed to new threats and attack attempts. Sustainability and Environmental factors : Risk that investments are made in non-sustainable sources, and are subject to reputational scrutiny and lower performance as part of a move towards more sustainable investments. Continued climate change could impact the industries in which the Company invests.	The Board carries out horizon scanning by: -  The Board is kept informed through its advisors -  and Manager on the Political, Economic and Legal landscape and reviews updates received on regulatory changes that affect the Company. -  The Manager and Advisors provide regular updates around planning for Brexit and any developments that may impact the Company. -  Reviewing industry and manager thematic outlook and insights in research publications. -  Receiving and reviewing a summary update outlining the cyber exposures and control framework of the Manager and service providers. -  The Board pays attention to the nature of its investments and how exposed the Company is to environmental and sustainable factors.
Pandemic : The uncertainty and unknown impact the Coronavirus outbreak will have is still unclear. Risk that industries and economies will suffer as a result, and potential Key Person Risk should the epidemic turn into a pandemic.	-  The Board and Manager are monitoring the progress of the Coronavirus outbreak closely. -  The Manager has taken the WHO advice, and has taken steps to limit exposure to staff. The Manager has plans in place to deal with any pandemic.

In addition to the specific principal risks identified in the table above, the Company faces risks arising from the provision of services from third parties including the Investment Manager where succession planning for the individuals carrying out the day-to-day investment activities has been discussed. General risks are also present relating to compliance with accounting, legal and regulatory requirements, and with corporate governance and shareholder relations issues which could have an impact on reputation and market rating. Management of the services provided and the internal controls procedures of the third party providers is monitored and reported on by the Manager to the Board. These risks are all formally reviewed by the Board twice each year and at such other times as deemed necessary. Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement within the Directors' Report beginning on page 71.

The Board's review of the risks faced by the Company also includes an assessment of the residual risks after mitigating action has been taken.

On behalf of the Board

Related Party Transactions

During the financial period no transactions with related parties took place which would materially affect the financial position or the performance of the Company.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Financial Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the total return of the Company for that year. In preparing these financial statements, the Directors are required to:

-  select suitable accounting policies and then apply them consistently;

-  make judgements and estimates that are reasonable and prudent;

-  state whether applicable UK accounting standards have been followed; and

-  prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

The Directors confirm that the financial statements comply with the above requirements.

The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The financial statements are published on www.allianztechnologytrust .  com, which is a website maintained by the Investment Manager. The work undertaken by the Auditors does not involve consideration of the maintenance and integrity of the website and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Neither an audit nor a review provides assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the Directors but no control procedures can provide absolute assurance in this area.

The Directors each confirm to the best of their knowledge that:

(a)  the Financial Statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and return of the Company; and

(b)  the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, along with a description of the principal risks and uncertainties that the Company faces.

The Directors confirm that the Annual Report and Financial Statements, taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Company's position and performance, business model and strategy.

For and on half of the Board

Robert Jeens

Nomination Committee Chairman

13 March 2020

Investment Portfolio as at 31 December 2019

Investment	Sector #	Sub-sector #	Country	Fair Value £'000	% of Portfolio
Microsoft	Software	Systems Software	United States	45,637	8.0
Apple	Technology, Hardware Storage & Peripherals	Technology, Hardware Storage & Peripherals	United States	26,022	4.5
Facebook	Interactive Media & Services	Interactive Media & Services	United States	24,845	4.4
Taiwan Semiconductor	Semiconductors & Semiconductor Equipment	Semiconductors	Taiwan	20,526	3.6
Paycom Software	Software	Application Software	United States	19,511	3.4
Mastercard	IT Services	Data Processing & Outsourced Services	United States	16,243	2.9
Teradyne	Semiconductors & Semiconductor Equipment	Semiconductor Equipment	United States	15,133	2.7
Samsung Electronics	Technology, Hardware Storage & Peripherals	Technology, Hardware Storage & Peripherals	South Korea	14,905	2.6
Fortinet	Software	Systems Software	United States	13,549	2.4
Ringcentral	Software	Application Software	United States	13,370	2.4
T opteninvestments				209,741	36.9
Autodesk	Software	Application Software	United States	12,388	2.2
Advanced Micro Devices	Semiconductors & Semiconductor Equipment	Semiconductors	United States	12,360	2.2
Tesla	Automobiles	Automobile Manufacturers	United States	12,034	2.1
Alphabet Inc	Internet Software & Services	Internet Software & Services	United States	11,471	2.0
Zscaler	Software	Systems Software	United States	11,375	2.0
Square	IT Services	Data Processing & Outsourced Services	United States	10,463	1.9
Yandex	Internet Software & Services	Internet Software & Services	Netherlands	10,425	1.8
Okta	Internet Software & Services	Internet Software & Services	United States	10,184	1.8
Qualcomm	Semiconductors & Semiconductor Equipment	Semiconductors	United States	9,626	1.7
Nvidia	Semiconductors & Semiconductor Equipment	Semiconductors	United States	9,401	1.7
Top twenty investments				319,468	56.3
Workday	Software	Application Software	United States	8,901	1.6
MongoDB	IT Services	Internet Services & Infrastructure	United States	8,805	1.5
Netflix	Entertainment	Movies & Entertainment	United States	8,492	1.5
Snap	Interactive Media & Services	Interactive Media & Services	United States	8,197	1.4
Aveva	Software	Application Software	United Kingdom	7,458	1.3
Nemetschek	Software	Application Software	Germany	7,287	1.3
Alibaba	Internet Software & Services	Internet Software & Services	Cayman Islands	7,285	1.3
Visa	IT Services	Data Processing & Outsourced Services	United States	7,251	1.3
Splunk	Software	Application Software	United States	6,926	1.2
Zendesk	Software	Application Software	United States	6,473	1.1
Top thirty investments				396,543	69.8
Kla Tencor	Semiconductors & Semiconductor Equipment	Semiconductor Equipment	United States	6,336	1.1
Flex	Electronic Equipment Instruments & Components	Electronic Manufacturing Services	Singapore	6,331	1.1
STMicroelectronics	Semiconductors & Semiconductor Equipment	Semiconductors	Netherlands	6,322	1.1
Lam Research	Semiconductors & Semiconductor Equipment	Semiconductor Equipment	United States	6,293	1.1
Coupa Software	Software	Application Software	United States	6,217	1.1
Infineon Technologies	Semiconductors & Semiconductor Equipment	Semiconductors	Germany	6,063	1.1
Temenos	Software	Application Software	Switzerland	5,956	1.1
Akamai Technologies	IT Services	Internet Services & Infrastructure	United States	5,942	1.1
Adyen	IT Services	Data Processing & Outsourced	Netherlands	5,921	1.0
ASML	Semiconductors & Semiconductor Equipment	Semiconductor Equipment	Netherlands	5,830	1.0
Top forty investments				457,754	80.6
Atlassian	Software	Application Software	United Kingdom	5,830	1.0
Ericsson	Communications Equipment	Communications Equipment	Sweden	5,815	1.0
Cognex	Electronic Equipment Instruments & Components	Electronic Equipment Instruments	United States	5,804	1.0
Take-Two Interactive Software	Entertainment	Interactive Home Entertainment	United States	5,753	1.0
Micron Technology	Semiconductors & Semiconductor Equipment	Semiconductors	United States	5,733	1.0
Amazon.com	Internet & Direct Marketing Retail	Internet & Direct Marketing Retail	United States	5,613	1.0
Proofpoint	Software	Systems Software	United States	5,457	1.0
Smartsheet	Software	Application Software	United States	5,421	1.0
Pure Storage	Technology, Hardware Storage & Peripherals	Technology, Hardware Storage & Peripherals	United States	5,264	0.9
Roku	Entertainment	Movies & Entertainment	United States	4,538	0.8
Top fifty investments				512,982	90.3
Uber Technologies	Road & Rail	Trucking	United States	4,450	0.8
Cree	Semiconductors & Semiconductor Equipment	Semiconductors	United States	4,193	0.7
Viavi Solutions	Communications Equipment	Communications Equipment	United States	4,191	0.7
Equinix	Equity Real Estate Investment	Specialized REITs	United States	4,127	0.7
Crowdstrike	Software	Systems Software	United States	3,994	0.7
Bloom Energy	Electrical Equipment	Heavy Electrical Equipment	United States	3,953	0.7
Lyft	Road & Rail	Trucking	United States	3,189	0.6
Hubspot	Software	Application Software	United States	3,089	0.6
JD.com	Internet & Direct Marketing Retail	Internet & Direct Marketing Retail	Cayman Islands	2,945	0.6
Palo Alto Networks	Communications Equipment	Communications Equipment	United States	2,935	0.5
Top sixty investments				550,048	96.9
Docusign	Software	Application Software	United States	2,935	0.5
Veeva Systems	Health Care Technology	Health Care Technology	United States	2,926	0.5
Alteryx	Software	Application Software	United States	2,905	0.5
Zynga	Entertainment	Interactive Home Entertainment	United States	2,829	0.5
Computacenter	IT Services	IT Consulting & Other Services	United Kingdom	2,761	0.5
Twilio	IT Services	Internet Services & Infrastructure	United States	2,655	0.4
Grubhub	Retailing	Internet & Direct Marketing Retail	United States	875	0.2
Total Investments				567,934	100.00

^# GICS Industry classifications

INCOME STATEMENT

for the year ended 31 December 2019

		2019 Revenue  £	2019  Capital  £	2019  Total Return  £	2018* Revenue  £	2018*  Capital  £	2018*  Total Return  £
Gains on investments held at  fair value through profit or loss		-	126,602,466	126,602,466	-	27,035,470	27,035,470
(Loss) gains on foreign currencies		(11,271)	(518,966)	(530,237)	(276)	1,958,678	1,958,402
Income		2,768,331	-	2,768,331	1,861,880	-	1,861,880
Investment management fee and performance fee		(4,147,329)	-	(4,147,329)	(3,561,453)	(5,162,649)	(8,724,102)
Administration expenses		(837,939)	-	(837,939)	(847,061)	-	(847,061)
(Loss) profit before finance costs and taxation		(2,228,208)	126,083,500	123,855,292	(2,546,910)	23,831,499	21,284,589
Finance costs: interest payable and similar expenses		(1,525)	-	(1,525)	(26,174)	-	(26,174)
(Loss) profit before taxation		(2,229,733)	126,083,500	123,853,767	(2,573,084)	23,831,499	21,258,415
Taxation		(334,288)	-	(334,288)	(204,749)	-	(204,749)
(Loss) profit attributable to ordinary shareholders		(2,564,021)	126,083,500	123,519,479	(2,777,833)	23,831,499	21,053,666
(Loss) earnings per ordinary share		(7.46p)	367.04p	359.58p	(9.19p)	78.81p	69.62p

The total return column of this statement is the profit and loss account of the Company.

The supplementary revenue and capital columns are both prepared under the guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The net profit for the year disclosed above represents the Company's total comprehensive income

* 2018 was a 13 month period.

BALANCE SHEET

at 31 December 2019

		2019	2019	2018
Non Current Assets
Investments held at fair value through profit or loss			567,933,806	407,901,923
Current Assets
Other receivables		1,455,508		2,141,300
Cash and cash equivalents		15,438,099		30,717,000
		16,893,607		32,858,300
Current Liabilities
Other payables		(1,387,167)		(10,687,522)
Net current assets			15,506,440	22,170,778
Total Net assets			583,440,246	430,072,701
Capital and Reserves
Called up share capital			8,818,042	8,369,292
Share premium Account			160,093,330	130,694,014
Capital redemption reserve			1,020,750	1,020,750
Capital Reserve			436,848,128	310,764,628
Revenue Reserve			(23,340,004)	(20,775,983)
Shareholders' funds			583,440,246	430,072,701
Net asset value per ordinary share			1,654.1p	1,284.7p

The financial statements of Allianz Technology Trust PLC, company number 3117355, were approved and authorised for issue by the Board of Directors on 13 March 2020 and signed on its behalf by:

Robert Jeens

Chairman

STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2019

		Called up Share Capital  £	Share Premium Account  £	Capital Redemption Reserve  £	Capital Reserve  £	Revenue Reserve  £	Total  £
Net assets at 1 December 2017		7,075,720	41,810,716	1,020,750	281,523,911	(17,998,150)	313,432,947
Revenue loss		-	-	-	-	(2,777,833)	(2,777,833)
Shares issued from treasury during  the period		-	15,446,442	-	5,409,218	-	20,855,660
Shares issued from block listing facility during the period		1,293,572	73,436,856	-	-	-	74,730,428
Capital profit		-	-	-	23,831,499	-	23,831,499
Net assets at 31 December 2018*		8,369,292	130,694,014	1,020,750	310,764,628	(20,775,983)	430,072,701
Net assets at 1 January 2019		8,369,292	130,694,014	1,020,750	310,764,628	(20,775,983)	430,072,701
Revenue loss		-	-	-	-	(2,564,021)	(2,564,021)
Shares issued from block listing facility during the year		448,750	29,399,316	-	-	-	29,848,066
Capital profit		-	-	-	126,083,500	-	126,083,500
Net assets at 31 December 2019		8,818,042	160,093,330	1,020,750	436,848,128	(23,340,004)	583,440,246

*2018 was a 13 month period.

Note A

Summary of Accounting Policies

The financial statements - have been prepared on the basis of the accounting policies set out below.

The financial statements have been prepared in accordance with The Companies Act 2006, FRS 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP) issued by the Association of Investment Companies (AIC) in October 2019.

The amended SORP is not mandatory for adoption until periods beginning on or after 1 January 2019. Therefore it has been early adopted.

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. In accordance with the Company's status as a UK investment company under section 833 and 834 of the Companies Act 2006, net capital returns may be distributed by way of dividend.

The requirements have been met to qualify for the exemption to prepare a Cash Flow Statement.  Therefore the Cash Flow Statement has not been included in the financial statements.

The accounting policies adopted in preparing the current year's financial statements are consistent with those of previous years.

The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities which are readily realizable and significantly exceed liabilities. Accordingly, the Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future. The Company's business, the principal risks and uncertainties it faces, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 56 to 61.

Valuation

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, financial assets are held at fair value through profit or loss in accordance with FRS 102 Section 11: 'Basic Financial Instruments' and Section 12: 'Other Financial Instruments'.

Investments held at fair value through profit or loss are initially recognised at fair value. After initial recognition, these continue to be measured at fair value, which for quoted investments is either the bid price or the last traded price depending on the convention of the exchange on which the investment is listed. Gains or losses on investments are recognized in the capital column of the Income Statement.  Purchases and sales of financial assets are recognized on the trade date, being the date which the Company commits to purchase or sell the assets.

Unlisted investments are valued by the Directors based upon the latest dealing prices, stockbrokers' valuations, net asset values, earnings and other known accounting information in accordance with the principles set out by the International Private Equity and Venture Capital Valuation Guidelines issued in December 2018.

Transactions with the Investment Manager and related parties

The amounts paid to the investment manager together with details of the investment management contract are disclosed in Note 2 on page 97. The existence of an independent board of directors demonstrates that the company is free to pursue its own financial and operating policies and therefore, under FRS 102 Section 33: 'Related Party Disclosures', the investment manager is not considered to be a related party.

The Company's related parties are its directors. Fees paid to the Company's Board, including employer national insurance contributions, are disclosed in the Director's Remuneration Report on page 77. There are no other identifiable related parties at the period end, and as of 13 March 2020.

Note B

Return per Ordinary Share

The total return per Ordinary Share of 359.58p (2018: 69.62p) is based on the weighted average number of Ordinary Shares in issue of 34,351,460 (2018: 30,241,003).

Note C

Fixed Asset Investments

Included in the cost of investments are transaction costs on equity purchases which amounted to £222,578 (2018: £211,910) and transaction costs on equity sales which amounted to £158,716 (2018: £154,151).

Note D

2019 Financial Information

The financial information for the period ended 31 December 2019 has been extracted from the statutory accounts for that year. The auditor's report on those accounts was unqualified and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006. The Annual Financial Report has not yet been delivered to the Registrar of Companies.

2018 Financial Information

The financial information for the period ended 31 December 2018 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006.

Annual Report and Financial Statements

The full Annual Financial Report is available to be viewed on or downloaded from the Company's website at www.allianztechnologytrust.com.  Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, nor forms part of this announcement.

Annual General Meeting

The Annual General Meeting of the Company will be held at 12 noon on Tuesday 19 May 2019 at Grocers' Hall, Princess Street, London, EC2R 8AD.

 

END

 

 

FR SFAFLDESSEID