- Technology sector has emerged as a winner in this crisis and is now outperforming the benchmark. Likewise, the technology sector ETFs are also performing strongly and consistently with their indices.
- Technology ETFs provide low-cost exposure to a range of technology businesses.
- ETFs also pay distributions to the holders and could be traded like shares in the markets.
Investors seeking growth investments often end up building stakes in technology disruptive, innovative companies. The technology sector has been a wealth creator in the century after the dotcom bubble at an early stage.
Oftentimes, this growth affection leads to overpaying in investments. But traditional earnings multiples valuation for such high growth companies could be deceiving sometimes. Investors carry high expectations from such businesses partly because of the potential of their offerings.
Lower interest rates and risk-free rates directly impact the present value of future cash flows of the firm. With high investor expectations, prices reflect the market’s expectations of future cash flows of the firm.
In the wake of COVID-19, the technology sector has taken leaps, as the adoption of new technologies has been increasing, and digitisation theme has been accelerating, specifically, in tech-enabled segments like data centres, connectivity, supply chains, and retail.
ASX tech stars are also outperforming benchmarks, and many companies have hit record highs. In February this year, the S&P/ASX All Technology Index was launched to promote tech sector players in Australia.
Let’s look at some ETFs:
BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC)
ATEC seeks to match the performance of the S&P/ASX All Technology Index before fees and expenses. The fund gives exposure to companies listed on the Australian stock exchange, from information and medical technology, consumer electronics, online retail, and other tech-related market segments.
It offers a cost-effective exposure to leading Australian technology businesses at one place and delivers diversification in the portfolio. As ETF, this fund is also available on ASX to trade like any other share.
The fund distributes income annually, charges annual management fee of 0.38 per cent and expenses of 0.10 per cent per annum. At the end of June 2020, the index traded at a P/E of 87.96x with a market capitalisation $ 116.1 billion.
ATEC paid a distribution of $ 0.27 this month. Since inception in March 2020, the fund has delivered a price return of 24.25 per cent, while its last three months return was noted at 42 percent, as of 23 July. ATEC last traded at $ 17.800 on 24 July 2020, down by 2.144 per cent from its previous close.
ETFS Morningstar Global Technology ETF (ASX: TECH)
TECH tracks the performance of the Morningstar® Developed Markets Technology Moat Focus Index? and maintains a portfolio of global technology companies. It replicates the components and weightage of those components from the index.
The index usually includes 25-50 technology companies from segments such as semiconductors, data processing, databases, software, hardware, and equipment. As a Moat Focus Index, the administrator selects businesses having strong competitive advantages.
This fund provides exposure to technology companies but at a global scale with Morningstar’s moat methodology. It could be used as a diversification tool focused on global technology theme with competitive advantages.
ETFS charges 0.45 per cent per annum management fee, and the fund is available to trade on ASX. As of 24 July 2020, the fund holds 74.1 per cent assets in the United States, followed by Germany at 6.9 per cent, Switzerland at 6.4 per cent, Israel at 4.1 per cent and more.
The fund paid a distribution of $ 7.65 this month. TECH last traded at $ 82.300 on 24 July 2020, moving downward by 1.626 per cent from its last closing price. Since its inception, the fund has delivered a return of 66.92 per cent and 6.83 per cent in the last three-month period, as of 23 July 2020.
ETFS FANG+ ETF (ASX: FANG)
FANG tracks the performance of NYSE® FANG+™ Index before fees and expenses. It has stocks from sectors like technology, consumer discretionary, and companies that are highly tech-enabled. The index includes players such as Facebook, Amazon, Netflix, and Google or Alphabet.
The fund is rebalanced quarterly and is equally weighted across all the firms. For investors, the fund provides low cost exposure to leading innovation leaders, in addition to megatrend themes including digitisation and electric vehicles.
As of 24 July 2020, the fund allocation was noted at 46.9 per cent to communication services, followed by consumer discretionary at 33.8 per cent and information technology at 19.3 per cent. On country basis, 80.9 per cent exposure has been dedicated to the US and 19.1 per cent to China.
Some of the top constituents of the fund include Tesla Inc, Amazon.com, Alibaba Group, Nvidia Corporation, Apple, Twitter, Alphabet, Netflix, Facebook, and Baidu. The fund was established in February this year and has a semi-annual distribution frequency.
ETFS charges 0.35 per cent management fee per annum. It paid a distribution of $ 0.11 this month.
The last three-month return of the fund was noted at 20.70 per cent, while in the last one month, it delivered 8.56 per cent in returns. FANG last traded at $ 12.680 on 24 July 2020, down by 2.91 per cent from its previous close.
BetaShares Asia Technology Tigers ETF (ASX: ASIA)
ASIA seeks to track the performance of Solactive Asia Ex-Japan Technology & Internet Tigers Index before fees and expenses. It consists of the fifty largest online and technology stocks from Asia, excluding Japan.
The fund provides access to the high-growth Asian technology sector, which is expected to remain a growth sector. At the end of June, China was the most allocated country with over 50 per cent share, followed by Taiwan, South Korea, India, Hong Kong, and others.
The fund has an annual management cost of 0.67 per cent with certain additional costs. As of 23 July 2020, largest allocation in the fund was Tencent Holdings, followed by Tencent Semiconductor, Meituan Dianping, Alibaba Group, Samsung Electronics Co, JD.Com Inc, Netease Inc, Infosys Ltd, and others.
Over the past three months, the fund has delivered a return of 19.76 per cent while on a year to date basis, its return was noted at 25.73 per cent. On 24 July 2020, ASIA last traded at $ 8.930, moving downward by 1.76 per cent.
(Note: All currency in AUD unless specified otherwise)