If the technology sector is in the middle of a stock market bubble, then there are some chunky investment vehicles at risk of going pop when the euphoria subsides.
Among them is Allianz Technology Trust, a £1.35 billion investment company whose shares have been swept along in the recent investor frenzy for tech stocks. While the trust is used to the volatile swings in this part of the market, talk of online sales taxes and potential clampdowns by governments and regulators mean that now is a particularly spicey time to invest. This area is not for the faint-hearted.
Allianz Technology Trust was launched at the end of 1995 and has been managed by Allianz Global Investors since 2007. It is a member of the FTSE 250 share index and benchmarks its performance against the Dow Jones world technology index, which it has hugely outperformed in recent years.
Given the nature of the majority of its investments, the company prioritises generating strong capital growth for its shareholders. It does not pay a dividend at present and is unlikely to do so in the foreseeable future.
Unsurprisingly, the portfolio is dominated by pure tech holdings. Investors will be familiar with many of the companies that rank among the trust’s largest holdings. Alphabet — the owner of Google — Amazon, Microsoft and Apple all feature, although the manager has gone underweight with the latter two, relative to the reference index. It is also light in its holding of Alibaba, the Chinese-owned internet group.
There also are significant positions in less-well-known operators, including CrowdStrike Holdings, an American cybersecurity group that has performed particularly well for the trust, recently having delivered strong growth in revenues and billings. Likewise, Zscaler, a cloud security company that upgraded its forecasts at the end of last year.
Although the trust’s relative underweight position in Apple means that it will have missed out on some of the iPhone maker’s recent gains, its performance is nevertheless strikingly good. It performed much better than its index over the past one, three and six months and has shown it a clean pair of heels when assessed over one, three and five years, according to the December factsheet. Based on share price total return, it is also the best-performing vehicle in the technology and media sector as compiled by the Association of Investment Companies.
The shares, up 20p, or 0.6 per cent, to £31.90, have really taken off over the past two years and over the past decade have performed better even than Polar Capital Technology, a similar vehicle that is also popular among individual investors.
Standing back, it feels that the trends that Allianz Technology Trust is interested in — cybersecurity, the cloud, online retailing, financial technology — remain in the ascendent and have been accelerated by the global pandemic. Yes, there is clearly a worry that the present investor excitement about the sector will wane over the short term, but the area as a whole seems likely to thrive over the longer term.
A question mark lingers over whether now is the right time to buy into a market that is clearly full of froth. Allianz Technology Trust’s shares trade at a very slight premium to the underlying net value of its assets, meaning that it is technically more expensive to buy than the shares it owns. This is offset by the separate charges that shareholders would incur when buying the individual shares and there are also the benefits of owning a targeted but diverse portfolio. All in all, for tech believers this is a clear long-term “buy”.
ADVICE Buy
WHY Attractive portfolio that has performed very well over the past and looks to be on track for further gains
Biffa
There’s opportunity in waste and Biffa is one of the nation’s experts in it. The FTSE 250 company is involved in every conceivable area of rubbish, from removing it and disposing of it to recycling it or turning it into energy. This may not be the most glamorous of enterprises, but, let’s face it, everyone wants rid of their trash.
Biffa began as a family business in Wembley in 1912 and was first listed on the stock market in 2006, 15 years after being taken over by Severn Trent, the utility. The company has a market value of just over £717 million, manageable borrowings equating to just over twice its underlying profits before charges and in its most recent financial year made a statutory pre-tax profit of £56.4 million on revenues approaching £1.2 billion.
By far the largest part of Biffa’s business consists of collecting waste from industrial and commercial customers, which include Greggs, the bakery chain, and Mitchells & Butlers, the pubs and restaurants group. A far smaller division picks up rubbish for local authorities.
The first set of lockdowns put a big dent in trading for Biffa as businesses it served were forced to shut and a set of one-off Covid-induced costs pushed the group into a statutory pre-tax loss over the six months to late September.
Once industry reopened, however, trading bounced back rapidly and during the subsequent three months was running at 95 per cent of its level the previous year. Biffa has been much more cautious about the most recent lockdowns, although it has maintained its guidance on profits for the year as a whole.
Numis, the stockbroker, is looking for pre-tax profits of £10.5 million for the 12 months to the end of December on revenues of £931.3 million.
To its credit, Biffa has continued to act as a consolidator of a fragmented market, raising £100 million from a share placing last June to help to fund it. It also has plenty of potential in areas such as plastics recycling.
There is no dividend, so no yield, at present, but the shares — down ½p, or 0.2 per cent, 234½p last night— trade for 49.5 times HSBC’s earnings forecast. Even if that’s well-placed optimism about a recovery, it’s not a good entry point.
ADVICE Avoid
WHY Post-pandemic recovery is built into the price
