Latest / On The Money / Where next for tech shares following the tariff turmoil?

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Where next for tech shares following the tariff turmoil? · On The Money

• 0:03
  Kyle Caldwell: Hello, and welcome to the latest episode of On The Money, a weekly bite sized show that aims to help you get the most out of your savings and investments. In this episode, I'm speaking to an investor that specializes in technology shares, and that investor is Mike Seidenberg who manages the Allianz Technology Trust. I asked Mike how he approached the uptick in volatility for technology shares so far in 2025 as tariff uncertainty spook the sector and the wider US market. I also asked Mike to look ahead and give his outlook for the sector. Mike is based in San Francisco, so just to flag that this was a remote interview, and the interview took place last week in mid May.
• 0:49
  So let's get to it. So, Mike, we've seen so far in 2025, it has been a trickier hunting ground investing in technology shares. Uncertainty regarding US president Donald Trump's trade policy caused a pickup in stock market volatility from around mid February to early on in April. What were your views on the sell off? Was it justified, overblown, or somewhere in the middle?
• 1:18
  Mike Seidenberg: Sure. You know, it's a good question. I mean, you know, to say it's been a volatile year is a is a real understatement. You know, we started off tech started off strong at the beginning of the year, then, obviously, you had, you know, dramatic you know, a fairly dramatic drawdown due to the, you know, the the the the the discussion around tariffs and what that might mean to companies. Look.
• 1:48
  You know, as we sit here today, it appears that, you know, the initial the initial tariff discussions were one just, you know, just that, right, in order to get companies or sorry. Sorry. Get countries in order to, you know, to the table to renegotiate tariffs. And, I mean, that appears to be the direction we're going. Who knows kind of, you know, how it plays out?
• 2:21
  I think the one thing we've done as as a team is to make sure that if we're gonna make a decision, we do it wisely and not be reactionary, and that's something that I think we practice quite a lot. You know, we're very disciplined around that. So I think that, you know, I think that, you know, we're gonna we're gonna maintain our discipline, and, you know, we're gonna continue to look for unique opportunities, companies solving difficult problems, etcetera, etcetera. So, you know, that's kinda how I feel. I mean, it's definitely been it's definitely been something where it has introduced just a lot of volatility, you know, with respect to just, you know, kinda how kind of the day to day stress of the job is what I'd say.
• 3:16
  Kyle Caldwell: And how much of a factor alongside tariff uncertainty where valuations to blame for the sell off? Of course, in both 2023 and 2024, they were both very strong years for the technology sector. And of and as a result of that, the valuations did become richer.
• 3:33
  Mike Seidenberg: Yeah. I mean, I didn't look at stocks, you know, at the end of twenty twenty four and say, oh, boy. Oh my goodness. These are really expensive. I think in certain sectors, you had higher valuations.
• 3:45
  But I think on average, you know, I mean, remember, we're we you know, we've digested a lot of product post the pandemic. So it's you know, in short, your technology's, you know, good years in 2023 and 2024. But I went into 2025 thinking about a real rifled approach, which is, you know, why at the margin, you can see the trust runs fewer positions. You they tend to be bigger. They tend to be more focused on, you know, kind of more secular ideas.
• 4:20
  You know? But I entered, you know, I entered 2025 thinking that, you know, in some of the sectors we cover, that we had a chance for really good appreciation. You know? Here again, you know, we we, you know, we saw a drawdown. We've seen a recovery.
• 4:35
  We've seen companies report, you know, q ones that on on average are pretty good quarters. You know?
• 4:41
  Kyle Caldwell: And we've seen over the past month or so, US stock markets have been making a recovery. It all started when Donald Trump pressed the pause button on delay in tariffs for most countries, a ninety day pause. And then since then, we've also had The US and China strike a a a a trade deal as well. Do you think this uncertainty over tariffs, it's now over, or could there be more short term pain to come?
• 5:07
  Mike Seidenberg: I mean, you know, with the current administration, you know, it's probably the latter, not the former. Right? I mean, could there? Absolutely. I mean, you know, the unpredictability is very difficult to predict by definition.
• 5:23
  And, you know, we've seen stuff that I don't think any investors thought we'd see, you know, from from the current administration. Having said that, you know, our job is to build a portfolio that can perform in in a variety of macro conditions, and, you know, that's the task at hand. So, you know, I could I could wring my hair out and be like, oh, woe is me, you know, unless unless I plan on, you know, passing the baton to somebody else. Our our job is to invest in technology companies that solve difficult problems, you know, that are gonna execute, you know, in in a variety of macros. And, therefore, what you see with the trust traditionally is you see tilts.
• 6:08
  Right? In a more bullish, you know, economy, you will probably see us tilt more to the higher growth names in a more challenging economy. We'll probably have more kind of GARP y value stocks. But, ultimately, you know, it's building the it's building the portfolio from a bottoms up perspective with a macro overview, and that's that's our job.
• 6:32
  Kyle Caldwell: And in terms of portfolio activity, I spotted that you've recently introduced two new Chinese companies, Alibaba and Tencent. Could you talk us through that decision? I I saw that you said that it was to give the portfolio more diversification.
• 6:47
  Mike Seidenberg: Yeah. I mean, look, not surprisingly, we're looking outside The United States. It's not just limited to those two, for opportunities in technology, you know, given what we've seen from the tariffs or the proposed tariffs is the correct statement. But, yeah, I do think at the margin, all things being equal, you know, there is gonna be some backlash potential backlash against US companies given kind of the policy decisions that are being proposed. That doesn't mean that that that that that's the final final kinda outcome.
• 7:23
  So, you know, we have looked outside The US. I think in the case of the Chinese companies that you referenced, Alibaba and Tencent, those were bought for very specific reasons. I mean, really driven around AI solutions and really feeling that that that that they that they had some differentiated product, that we were protected from a governance perspective, given kinda where they are in the pecking order of the Chinese tech companies. They're at the very top. I think, you know, I've been pretty clear that the administration in China is something that that that is fairly uncomfortable for the team, but we thought that the that the benefits outweighed the risk with respect to some of these AI solutions that we're seeing out of out of the likes of Alibaba and Tencent.
• 8:13
  Kyle Caldwell: And did you make many of the changes during the sell off? I know that you have a lot of exposure to the magnificent seven stocks. I think the only one you don't own in your top 10 holdings is Tesla. I don't think you have that at all.
• 8:23
  Mike Seidenberg: Have you have you have you
• 8:25
  Kyle Caldwell: maintained positions for those sorts
• 8:27
  Mike Seidenberg: of stocks? We probably varied the positions a little, not a lot. Look. I think it's also important despite the fact that we are using a fair amount of capital in the magnificent seven. It's just a reminder to the listeners that, you know, we are underweight relative to the benchmark, which is kinda why, you know, I I I I'm proud of the team's ability to keep up, despite not owning, you know, benchmark weights in in these stocks, which have just been, you know, on on the terror of the past few years.
• 8:58
  You know, I think we you know, like most portfolio managers, we have varying degrees of, you know, like, you know, things we're more excited about within that group and things we're less excited about. But for the most part, we haven't made major changes. I mean, we've been in we've been underweight NVIDIA from a from a from a benchmark perspective. We remain underweight. I think it's a great company.
• 9:20
  I think that, you know, you know, our thesis, what had nothing to do with tariffs, had to do with, you know, kind of late last or kind of summer of last year, just kinda looking at product transition and, you know, which can be tricky for companies as they introduce new products, you know, from a production perspective. But, you know, on average, you know, and I've said this for a long time, the, you know, the the the mag seven are just you know, they're really good companies. You know, we just our job is is to find performance elsewhere at the margin, and we and we really try to charter ourselves in trying to do that.
• 9:55
  Kyle Caldwell: And in percentage terms, what is the current underweight for the for the investment trust versus those seven stocks?
• 10:02
  Mike Seidenberg: I mean, I don't have the exact number off the top of my head. On average, you know, you know, we're we are materially underweight, the magnificent seven because they are such a chunky, chunky portion of our benchmark. So in some cases, you know, we could be at 50% of the benchmark. So, you know, I I don't I wouldn't wanna throw out a number unless I had the exact number.
• 10:26
  Kyle Caldwell: You've touched on the artificial intelligence trends. Could you outline how big a theme is in the portfolio and what your latest thinking is? And it'd be great to hear some sectors and other companies mentioned that you invest in for that theme.
• 10:41
  Mike Seidenberg: Sure. Yeah. I mean, you know, there isn't a company that that that investors interact with today that aren't, you know, that that that aren't looking at artificial intelligence as a way to make their business better. I mean, I think it you know, it's from, you know, you could get from McDonald's to Microsoft. Right?
• 11:01
  You know, the everybody's trying to figure out how how to how to use artificial intelligence to make their you know, either just, you know, sell more things, better customer service, take out costs, you name it. Right? You know, I I think the you know, when I think about the trust and kind of how we're positioned today with respect to AI, I think we're really kind of looking at the enablement side, you know, as companies use the technology to make their products better. I you know, I'd say previously, you know, we we'd had, you know, pretty chunky position sizes in the picks and shovels side of the business. You know, those are a little bit smaller today and probably trying to play it through a variety of other, you know, sectors.
• 11:47
  Right? If you take a look at the the likes of, you know, some of the ad ad companies, right, whether it's, you know, Google or whether it's Meta, you know, they're really using artificial intelligence to make not only their tools better for their customers, but also the experience better for us, the consumer. You know, if you take a look at some of the security companies, cybersecurity companies, which is a large theme for the trust, you're seeing artificial intelligence make the users of cybersecurity products more efficient. Right? And that's a huge pain point.
• 12:24
  I mean, I was just at RSA, which is the large security event a few weeks ago in San Francisco, and, you know, the one message you get consist that you hear consistently at that trade show is we need people. Right? We have too many open job wrecks. We have too many false positives. And by the way, the adversaries are getting better and better.
• 12:44
  Right? That is not the equation that you wanna hear. But then you hear about like, you go talk to some of the our holdings, which we did, and you hear about them using artificial intelligence to make their products better. That's a win. So I think those are the types of things we're looking for.
• 13:02
  You know, I think that, you know, here again, I don't think there's any kind of, you know, call it fortune 2,000 company that isn't considering what it means to her or his business. But, you know, you know, we'll continue to look for enablers. We'll continue to look for companies that we think, you know, are potentially on the picks and shovel side, you know, of the business. But, yeah, I you know, this is a really important movement in technology. And, you know, you get stuff like this kind of, you know, call it once every ten to twelve years.
• 13:37
  So when it happens, it's powerful. And you saw that. Right? You saw that with the results of the hyperscalers who basically said, you know, we're continuing to invest in, you know, our artificial intelligence solutions and build out data centers because we see demand for the services. Right?
• 13:56
  So, you know, that that's a pretty big vote of confidence in my opinion.
• 14:02
  Kyle Caldwell: A key part of your focus is to identify market leaders. I've seen you say in the past that technology companies that are market leaders who execute well are likely to be rewarded. Could you talk us through then how you find those potential winners?
• 14:17
  Mike Seidenberg: Sure, Kyle. You know, I mean, we operate under a mosaic. Right? So, you know, we're really chartered with going out and doing a lot of listening. And you listen to customers, and you listen to chief information officers, and you listen to system integrators.
• 14:34
  You know, you talk to engineers that are building chips and and who's winning bill bill of materials. And from that, that kinda points you in a direction whether that's a subsector level or what yeah. You know, it tends to be point us in a subsector level direction. And, you know, we then kind of drill down and look at look at that subsector, look at the competitive landscape, look at the gross profit dollars available, and then figure out, you know, a, is it interesting because, you know, not every sector there's a lot of profitless prosperity, and that's not something that I'm that interested in, as an investor. But then we kinda drill down to figure out kinda who the number ones and number twos are in a given subsector.
• 15:21
  And that really boils down to this kind of, you know, notion that, you know, the good ideas are a dime a dozen, but execution is rare. So when you find companies that execute, you really wanna kind of, you know, you know, tie your paddle to the to, you know, to that to that canoe, so to speak. And, you know, that's something that, you know, it's a process. It, you know, it requires patience. Arguably, sometimes we're not patient enough.
• 15:51
  And but I think the the idea is, you know, the idea is to be able to be on board for that trajectory of execution. Doesn't mean it won't have it hiccups along the way, but and then just, you know, hopefully get rewarded for it. And we have seen traditionally in technology that the number ones and twos take disproportional share. Look. You know, a lot of these companies are fighting for intellectual capital.
• 16:20
  Right? Those are the widgets in a lot of these businesses. And therefore, you know, leadership, culture, you know, how companies deal with problems, you know, that becomes really important stuff to to to to understand, you know, the companies that we need to invest in. And I'd like to think that we're constantly working on our process. I mean, as the portfolio manager, I can't tell you how much I love going to meet with companies.
• 16:48
  I just, you know, I it just makes me excited. And, you know, I was at RSA, as I mentioned, a couple weeks ago, just being on the trade floor, you know, being on the show floor. All these customers are there. They're, you know, talking to them, understanding kind of what their problems are, what tools and technologies they're using to solve it. And I have you know, I'm fortunate.
• 17:11
  I have a team a team of people that have that same passion that go out and do it in other sectors, and then we work accordingly to figure out the best portfolio for our investors, hopefully.
• 17:22
  Kyle Caldwell: And could you highlight a couple of examples of the market leaders that you own in the cybersecurity sector, which as you mentioned, is the the number one theme for the investment trust at the moment?
• 17:33
  Mike Seidenberg: It's one of the themes. I wouldn't say it's the number one theme. Mean, we have a variety of themes. You know, if I take a look at kind of a company like CyberArk, right, where we've owned it for multiple years, you know, they started in kind of, you know, kind of what I call server identity that led them to the cloud. As the cloud proliferated, they started thinking about other types of identity, whether that's machine identity.
• 18:01
  You know? And then they did an acquisition of a company that had been starved for cash, which has really proven to be really proven to be is thus far a successful acquisition, which, by the way, normally isn't the case in a in a lot of companies. Look. You know, I think it really boils back to their initial area of focus, which was solving this this this this pain around, you know, getting privileged access to things like servers and routers and things that are, you know, just so important in today's world. And then they've just branched off, and they've been able to do that in a virtual environment.
• 18:41
  And now we're living in this this age of, you know, agents and machines, and, you know, then they're moving into that. So, you know, I think, you know, it's it's a company that we've known them since they went public. Yeah. This is the second CEO. The founder was the first one who we really liked.
• 18:58
  Like the current one, you know, new CFO who we've known. So I'd say it's been a journey of just being patient. It's been a journey of really understanding why they do better versus their competition. And, you know, we've had you know, like most funds, we've had varying position sizes depending on valuation and kind of the overall situation. But, you know, I think it's a good example of just a, you know, a company where we've been able to identify it and had a really differentiated view and things just, you know, you know, more good things happen, you know, came along with that, which just allowed us to kind of rethink the opportunity as time went on.
• 19:44
  Kyle Caldwell: You've mentioned the importance of being patient a couple of times, which I think investors should also have at the forefront of their minds when there are heightened periods of short term volatility. And in particular, with technology, it's very important to take the long term view. So could you provide an outlook for technology sector on a longer term view, say say over the next five years?
• 20:06
  Mike Seidenberg: Yeah. I mean so listen. You know, if I really I don't have a crystal ball, but I can tell you this. You know? And I do think it's important to be pay patient, and I think it's really important for our investors and the ones that have been impatient.
• 20:20
  You know, you know, I think that they feel good about their patients and what we've delivered to them over time. If you think about areas of leadership for, you know, countries like The UK and The United States and, you know, kind of many of these first world countries, it really boils down to a few industries of which technology is one of them. And the problems that technology solves on average are pretty difficult things. Right? And when you solve a difficult problem or there's a lot of pain, I always say this, you know, people will pay you for that.
• 20:57
  And if you do a really good job, they'll wanna buy something else from you. They'll wanna buy a second product. And I often talk to the younger companies that we invest in about making sure that, you know, happy customers wanna buy more. And I believe that, and I've lived that when I worked in industry. So I think for us and for the for the group so at the highest level, I don't think the technology story is even at all over.
• 21:25
  Right? This has been you know, I've been working in technology. I worked at Oracle, so you started in in 1997. And, you know, I can remember people saying, oh, client server, it's over. You know, there's been lots of it's overs.
• 21:42
  And the reality is technology is becoming increasingly important part of the economy, and we're living in a very digital world. And so that's people probably aren't going back. Right? You know? I hear I never hear anyone say, by the way, I'm getting rid of my iPhone.
• 21:58
  I really dislike it. There are aspects of it people dislike. Like, I dislike the fact that I'm always available, which is why I put a do not disturb sign on my phone when I go to bed, you know, electronically, I might add. But look. Technology saw technology is is the fabric of our lives, and that'll continue to be the case.
• 22:20
  By the way, it's not the only industry that, you know, that that that that I think is interesting growth industry. I think, you know, pharma, amazing stuff happening there using lots of technology in that solution. So, you know, sure, it's gonna ebb and flow, and there are gonna be times where it's more in favor and more out of favor. But I just go back to this kind of premise that, you know, it's an it it continues to be an increasing part of creating a competitive advantage for companies, and therefore, that probably persists. And it you know, here again, it's gonna zig and zag, but, you know, the technology story isn't a year story.
• 23:01
  It isn't a decade story. It's a multi decade story. And I'll be, you know, whatever, skiing on the beach, and they'll still be talking about technology. It's just, you know, when you when you have that type of innovation, that's just impressive, and it's not an innovation for innovation's sake. And that's the other thing that I always remind myself.
• 23:22
  Kyle Caldwell: Thank you to Mike, and thank you for listening to this episode of On the Money. If you enjoyed it, please follow the show in your podcast app and tell a friend about it. And if you get a chance, leave a review or a rating in your podcast app too. You can join the conversation, ask questions, and tell us what you'd like to talk about via email on 0cm@ii.co.uk. And in the meantime, you can find more information and practical pointers on how to get the most out of your investments on the interactive investor website at ii.co.uk, and I'll see you next week.