The fund managers of Allianz Technology (ATT) have scooped a £5.2 million performance fee after squeezing out a near double-digit return last year when their tech benchmark was flat.
The latest annual report from the £500 million trust shows the management team led by Walter Price at Allianz Global Investors (AGI) generated a 9% total return on net assets compared to a mere 0.1% gain in the Dow Jones World Technology index.
The performance came in the 13 months to 31 December after the company moved its financial year end from November in the previous year.
This is the second year in a row Price's team and AGI have earned an additional fee for beating their benchmark, although the payment for 2017 was a lot smaller at £433,476.
In total ATT paid AGI £8.7 million last year when the £3.5 million basic annual charge to the fund manager is included. This was up from £2.5 million in 2017, the increase attributable to the outperformance and the increase in the size of the fund, which, despite volatile markets, saw its net assets grow from £313 million to £430 million.
The last time the trust paid a big performance fee to AGI was four years ago, when it shelled out £6.1 million. The huge payout prompted the board to renegotiate the fees and cut the annual management charge to 0.8% from 1% of net assets and slash AGI's share of any outperformance over the Dow Jones benchmark from 20% to 12.5%.
In addition the trust capped the total AGI could receive in all fees at 2.25% of net assets.
Chairman Robert Jeens defended the performance fee saying it encouraged the managers to continue delivering the strong long-term performance of the fund. Over 10 years to yesterday its shareholders have enjoyed a 702% total return, way ahead of the 479% return from the Dow Jones World Technology index.
‘Your board is pleased with the company’s outperformance over the period and believe that it is appropriate that this has triggered the payment of a substantial performance fee,’ he said.
Jeens said any future performance fee would only be paid if Price (pictured) and his team beat the benchmark and increased net asset value (NAV) beyond the new raised ‘high water mark’ of just over £12.81. NAV per share ended the year at £11.78p.
Although the underlying NAV growth was robust, ATT investors saw their shares rise just 1.7% in the 13-month period as US-China trade tensions and fears of a tech bubble kept investors away.
Sentiment soured badly in the fourth quarter of 2018 when the shares slumped 24% as global markets suffered their worst retreat in seven years. However, they have bounced back 23% so far this year and stand on a discount of just 0.8% below NAV, according to Morningstar data.
Having traded at a premium above NAV in the first half of last year, ATT shares fell to a discount below asset value. The board took advantage of the earlier higher rating by issuing nearly 6.9 million shares, adding nearly £96 million to the trust's shareholder capital.
Despite the stock market volatility, tech companies' earnings growth remained strong last year. Price expected profits growth for the sector to be over 20% once companies had reported full-year results and over 30% for companies held by ATT.
Amazon (AMZN.O) was one of two ‘stand-out’ performers in 2018 despite guiding lower growth in the fourth quarter after a 30% spike in earnings in the previous three months. The other was payment processor Square (SQ.N), tipped by Price as part of the growing software-as-a-service trend. Amazon accounted for 6.6% of the trust’s portfolio at the end of the year, while Square was a 3.1% position.
E-sports, multiplayer video game competitions, also formed part of the emerging trends Price had started to factor into his portfolio. US video game company Take-Two Interactive Software (TTWO.O) represented a 1.4% position in the portfolio in December.
‘Participants play video games, while being watched by a live audience and are drawing larger and larger crowds: One major tournament, the 2018 League of Legends World Championship finals, attracted 200 million,’ he explained.