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In March 2020, BetaShares launched the first ETF to provide dedicated exposure to Australia’s fast growing technology sector, the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC), hot on the heels of the launch of the S&P/ASX All Technology Index just two weeks earlier.
We would be remiss if we did not mark the first anniversary of ATEC’s launch by taking a moment to reflect on its freshman year, and how ATEC navigated one of the most challenging periods the markets have ever faced.
Let’s review some of the breakthrough companies which contributed to ATEC’s strong performance over the last 12 months and attempt to gauge where future drivers of growth may come from.
2020 will go down in history as one of the most volatile periods in global equity markets, with sectors such as financials, energy and real estate providing negative returns over the calendar year. However, while many parts of the broader economy struggled with COVID-induced lockdowns, the technology sector remained largely unaffected and, in several ways, capitalised on the new way of living.
As a result, ATEC, like many technology-focused ETFs around the world, recovered strongly after initially suffering a significant fall. As can be seen in the graph below, ATEC’s index has risen by 53.49% in the 12 months to 3 March 2021, outperforming the S&P/ASX 200 by 42.74%, and even beating the tech-heavy U.S. Nasdaq 100 index over the same period (in Australian dollar terms). Over the 5 years to 3 March 2021, ATEC’s index has produced an annualised return of 23.15% p.a. Of course, it’s important to remember that past performance isn’t necessarily indicative of future performance of any index or ETF.
Source: Bloomberg. As at 3 March 2021. Shows performance of ATEC’s index. You cannot invest directly in an index. Index performance does not take into account ETF fees and costs.
The Rise of Buy Now, Pay Later
Looking under ATECs hood, it’s clear that buy-now, pay-later (BNPL) companies have been a key driver of performance. These platforms have successfully disrupted decades-old credit card industries by allowing customers to buy goods now, receive them now, and pay for them in instalments over a period of time without having to pay interest.
Without a doubt the MVP in this sector has been Afterpay. Capitalising on its first mover advantage, Afterpay expanded its existing footprint in Canadian, U.K. and U.S. retail markets throughout 2020. The company delivered record H1 FY21 underlying sales of $9.8 billion, more than doubling the $4.5 billion dollars in underlying sales in H2 FY20 (up 106%)1. Afterpay now accounts for over 20% of ATEC’s index weight and contributed 25.7% return to the index over the previous 12 months2.
S&P/ASX All Technology Index (Constituent Contribution to Return – March 3, 2020, to March 3, 2021)3
|Company||Average Weight (%)||Constituent Total Return (%)||Contribution to Index Total Return (%)|
|WiseTech Global Limited||3.9||69.75||2.98|
|REA Group Limited||6.2||46.20||2.34|
|Pro Medicus Limited||1.4||123.84||1.58|
The hunt for the next Afterpay
While a few companies within the BNPL sector may have captured headlines and investor attention alike, the Australian technology field is an increasingly diverse and growing sector that goes well beyond the traditional information technology companies.
In order to provide a better representation of the broader Australian technology industry, ATEC’s index includes companies from a range of innovative technology-related industries from consumer electronics, internet and direct marketing retail, interactive media and health care technology.
Given this broader approach, and the growth of the industry, a further 26 companies were added to the portfolio over the last 12 months, increasing the portfolio to 69 companies, up from 46 at the time of launch (three companies fell out of the index)4.
Let’s take our blinkers off and take a gander at some of the new and lesser-known guests at the party, and the potential they offer to drive ATEC’s future growth.
Tesserent (TNT), the Australian-operated end-to-end cybersecurity provider, was added to the index in December 2020 after a series of acquisitions throughout 2020 solidified its position as Australia’s largest ASX-listed cyber security provider. Tesserent serves industries across private enterprise and government (federal, state and local), and critical infrastructure projects such as transport and logistics. Given the ever-increasing threat of cybercrime and greater onus on institutions to protect their stakeholders, Tesserent appears to have strategically positioned itself as one of the leading options in the Australian cybersecurity market.
Sezzle (SZL), the Minneapolis-based BNPL company, was added to the index in September 2020, and since then has seen its share price rise a further 41.86% as at 3 March 2021. Sezzle’s business model is for the most part a mirror image of Afterpay, but unlike Afterpay, Sezzle predominantly focuses on the lucrative U.S. market, and has the added benefit of having entered that market almost a year before the arrival of Afterpay. Unlike in Australia, where you can find Afterpay stickers on most shopfronts, BNPL platforms are yet to catch fire in the U.S., and given the A$7 trillion retail market in the U.S.5, there is significant growth potential.
Novonix Limited (NBX), an Australian-based and operated battery materials and technology company, was also added to the index in September 2020, after its share price more than quadrupled over a one-month period from May to June 2020. This came following the announcement by Novonix of a patented manufacturing process (under a research partnership) that has a number of commercial uses, including in substantially improving the performance capability of electric vehicles and energy storage. The upside for Novonix has the potential to continue, given the growth of the EV industry and Novonix’s diverse customer base across the battery technology space, which includes Samsung, Apple, Honda and Panasonic.
2021: The ‘Terrific Twos’?
Despite a wild and unpredictable 12 months for equity markets, the technology industry in Australia has surpassed expectations and continued its strong growth, with the market cap of the S&P/ASX All Technology Index constituents increasing by 78%, up from A$102 billon to A$182 billion over the 12 months to 14 February 20216.
As we move into 2021, we’ve seen the ASX become one of the largest stock exchanges for technology outside the U.S., attracting IPOs from the U.S., Ireland, Israel, Singapore and NZ alike. With the help of some of the world’s most innovative and truly market-leading companies, we expect this trend will likely continue.
ATEC provides a convenient and cost-effective way for investors to gain exposure to a diversified portfolio of leading companies in the sector.
Happy birthday ATEC!
There are risks associated with an investment in the Fund, including market risk, technology sector risk and concentration risk. For more information on risks and other features of the Fund, please see the Product Disclosure Statement, available at . The Fund’s returns can be expected to be more volatile (i.e. vary up and down) than a broad Australian shares exposure, given its concentrated sector exposure. The Fund should only be considered as a component of a broader portfolio.
The S&P/ASX All Technology Index (Index) is a product of S&P Dow Jones Indices LLC or its affiliates (SPDJI) and ASX Operations Pty Ltd (ASX) and has been licensed for use by BetaShares. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (S&P); ASX® is a registered trademark of ASX, and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by BetaShares. ATEC is not sponsored, endorsed, sold or promoted by SPDJI, S&P, their respective affiliates, or ASX, and none of such parties make any representation regarding the advisability of investing in ATEC nor do they have any liability for any errors, omissions or interruptions of the Index.
1. Afterpay Limited. “AfterPay H1 FY21 Results Presentation.” ASX Announcement, 25 Feb. 2021.
2. Bloomberg. Past performance is not indicative of future performance of the index or ETF. Does not take into account ETF fees and costs. You cannot invest directly in an index.
4. “ASX All Technology Index.” Australian Securities Exchange, Australian Securities Exchange, www2.asx.com.au/markets/trade-our-cash-market/overview/indices/asx-all-technology-index. Accessed 23 Feb 2021.
5. Dunn, James. “7 Buy Now, Pay Later Stocks to Consider.” NAB Trade, 17 Nov. 2021, www.nabtrade.com.au/investor/insights/latest-news/news/2020/11/7_buy_now_pay_later.
6. Orzano, Michael. “Exploring the S&P/ASX All Technology Index’s Remarkable First Year – S&P Dow Jones Indices.” Indexology, 23 Feb. 2021, www.indexologyblog.com/2021/02/23/exploring-the-sp-asx-all-technology-indexs-remarkable-first-year. Past performance is not indicative of future performance of the index or ETF. You cannot invest directly in an index. Does not take into account ETF fees and costs.