Why invest in tech?
The standout global sector of recent years from an investment perspective undoubtedly has been technology.
- Investors are typically attracted to technology stocks for their long-term growth potential
- Some technology ETFs aim to track a market cap-weighted index such as the Nasdaq-100 in the U.S., or the S&P/ASX All Technology Index in Australia
- Other tech ETFs provide more focused exposure to a particular technology theme, such as cloud computing, robotics and artificial intelligence and cybersecurity
Technology offers long-term growth potential
Investors are typically attracted to technology stocks for their long-term growth potential – everyone wants to pick the next Afterpay! However, picking winners is notoriously difficult. For every Afterpay, Amazon or Netflix, there are hundreds, even thousands, of companies trying to exploit the same opportunities that fail.
Investing in technology via ETFs has a number of benefits.
High on the list is diversified exposure. A technology ETF holds a portfolio of many stocks, sometimes in the hundreds. In a single trade, you get access to a wide range of stocks, meaning that you have not placed all your eggs in one particular technology ‘basket’.
Cost effectiveness is another plus. Because most technology ETFs take a passive investment approach, aiming to track an index rather than trying to pick winners, management costs are kept low and do not eat up a large part of your returns.
Technology ETFs also offer the other benefits of ETFs that you may already be familiar with. They are transparent – you can see exactly which stocks the ETF holds by checking the ETF issuer’s website. They typically trade at very close to the net asset value of the portfolio. And you can invest in them like any stock on the ASX, using your online trading account or via your broker/financial adviser.
Which ETFs can be used to gain exposure to technology?
Once you decide to use ETFs to invest in technology, you have a number of choices.
Some technology ETFs aim to track a market cap-weighted index such as the Nasdaq-100 in the U.S., or the S&P/ASX All Technology Index in Australia. These ETFs offer broad tech-related exposure to technology stocks traded in a particular market, and can be used as a ‘core technology’ allocation.
Other technology ETFs provide more focused exposure to a particular technology theme, for example, the BetaShares Cloud Computing ETF (ASX: CLDD).
Cloud-based computing services has been one of the fastest-growing segments of the global technology sector in recent years, and that growth is tipped to continue, with revenues forecast to grow 17.5% p.a. to reach US$832 billion by 20251 . CLDD allows investors to gain access to the growth potential of this sector, by providing exposure to the leading companies in the global cloud computing industry.
Investors can use these more focused technology ETFs in their portfolio as a complement to a broad-based technology exposure such as an ETF that aims to track the Nasdaq-100, or as a tactical allocation to a technology theme they are interested in.
To continue learning about ETFs, portfolio construction and investment strategies, visit the Education Centre.
1 Research and Markets, “Cloud Computing Market by Service Model (Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS)), Deployment Model (Public and Private), Organization Size, Vertical, and Region – Global Forecast to 2025”, August, 2020. Actual outcomes may differ materially from forecasts.
|Investing involves risk. The value of an investment can go down as well as up. Before making an investment decision you should consider the relevant Product Disclosure Statement (available at www.betashares.com.au) and your particular circumstances, including your tolerance for risk, and obtain financial advice. A technology ETF’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global or Australian shares exposure, given its concentrated sector exposure. An investment in any BetaShares fund should only be considered as a component of a broader portfolio.|