Technology has revolutionised the way people are living by creating a more interconnected community, reducing the cost of software, and improving processes and efficiencies.
Whether it’s embracing the cloud platform, using software as a service (SaaS) businesses, or consuming streaming content from an internet-connected device, technology is a growing sector that investors want exposure to.
The Australian share market only has a 3% allocation to technology companies compared to nearly 25% in the U.S. One of the best ways to access the most innovative and revolutionary global companies is via an exchange traded fund (ETF).
The following ETFs are listed on ASX that track the broad technology sector:
- BetaShares NASDAQ 100 ETF (NDQ)
- BetaShares Asia Technology Tigers ETF (ASIA)
- ETFS Morningstar Global Technology ETF (TECH)
- ETFS FANG+ ETF (FANG)
Note: NDQ also has a hedged version called the BetaShares NASDAQ 100 ETF – Currency Hedged (HNDQ).
Stockspot reviews and compares more than 250 ETFs in our annual Stockspot ETF Report. In this article, we road test the best technology ETFs in Australia across a range of different metrics to provide our analysis on the most suitable choice for investors.
NDQ is the largest ETF in the broad technology category managing $2.2 billion in funds under management, largely due to its first-mover advantage (launching in May 2015), strong returns and because it tracks a well-known index. ASIA has quickly amassed $500 million in its four-year tenure, while TECH and FANG have $279 million and $203 million respectively.
Costs and slippage
When it comes to cost, there are two components for ETF investors to consider – the management fee of the ETF and the costs of trading (i.e. slippage). Slippage refers to how much you lose by crossing the spread when buying or selling an ETF. It’s calculated by the average percentage difference between the best buyer and seller during market hours.
FANG is the lowest cost technology ETF charging 0.35% per year. The spreads of ASIA, TECH and FANG are quite similar, however, NDQ is the clear leader with tighter spreads of 0.07%. ASIA is the most expensive ETF in this category charging 0.67% due to tracking Asian markets which may not be as liquid or have a narrower focus.
|TICKER CODE||MANAGEMENT FEE||BUY/SELL SPREADS (SLIPPAGE)|
NDQ is the most liquid technology ETF, trading over $11 million in average daily volume. ASIA and FANG are the next most traded tech ETFs with around $2.2 million and $1.5 million traded daily respectively. TECH is the least liquid in the category, only trading just over $500,000 daily.
Returns and track record
Most technology ETFs listed on the ASX do not have a long track record since they have launched over the last few years to capitalise on the strong interest in this sector. NDQ has been the best performing technology ETF returning over 15% p.a. over the last three years. The U.S. technology sector has enjoyed strong performance, outperforming the more geographically diverse TECH ETF which returned 12% p.a. over the same period. ASIA has had a tough year down 36% as regulation in China has dampened returns. This shows that the technology sector can perform very differently due to their focus on certain geographic regions.
|TICKER CODE||1 Year Return||3 Year Return||5 Year Return|
Exposure and holdings
While these ETFs track a basket of tech stocks, they can have different underlying holdings and subsequent weights based on the underlying indexes they track.
NDQ tracks the NASDAQ 100 Index which looks at the top 100 non-financial companies listed on the NASDAQ exchange. ASIA tracks the Solactive Asia Ex-Japan Technology & Internet Tigers Index and has a focus on technology companies in China, Taiwan, South Korea, India and Singapore. TECH tracks the Morningstar Developed Markets Technology Moat Focus Index which comprises up to 50 technology companies with a strong competitive advantage and attractive valuations. FANG tracks the NYSE FANG+ index which equally weights high growth technology companies.
Here are the top 10 holdings in NDQ, ASIA, TECH and FANG:
|4||Tesla||Samsung||Fortive||Alphabet (Class A)|
|5||Alphabet (Class C)||Meituan||Intel||Baidu|
|6||Alphabet (Class A)||JD.com||Splunk||Amazon|
|10||Costco||Hon Hai Precision||WiseTech Global||NVIDIA|
|Top 10 Holdings||51.6%||69.8%||41.3%||100%|
What about other thematic tech ETFs?
While broader technology ETFs are diversified across the whole technology sector, there has been a rise of newer thematic ETFs that track very specific types of technology sectors.
|Ticker||Name||Cost||Size ($m)||1-year return||5-year return p.a.|
|HACK||BetaShares Global Cybersecurity ETF||0.67%||648||-6.6%||16.3%|
|ROBO||ETFS ROBO Global Robotics and Automation ETF||0.69%||194||-25.7%||N/A|
|RBTZ||BetaShares Global Robotics and Artificial Intelligence ETF||0.57%||136||-36.5%||N/A|
|ACDC||ETFS Battery Tech & Lithium ETF||0.69%||463||-15.0%||N/A|
|CLDD||BetaShares Cloud Computing ETF||0.67%||49||-36.0%||N/A|
|CURE||ETFS S&P Biotech ETF||0.45%||42||-40.5%||N/A|
|SEMI||ETFS Semiconductor ETF||0.57%||74||N/A||N/A|
|ESPO||VanEck Vectors Video Gaming and Esports ETF||0.55%||78||-26.4%||N/A|
|IPAY||BetaShares Future of Payments ETF||0.67%||5||N/A||N/A|
|DRIV||BetaShares Electric Vehicles and Future Mobility ETF||0.67%||10||N/A||N/A|
|FTEC||ETFS Fintech & Blockchain ETF||0.69%||10||N/A||N/A|
|GAME||BetaShares Video Games and Esports ETF||0.57%||4||N/A||N/A|
|IBUY||BetaShares Online Retail and E-Commerce ETF||0.67%||1||N/A||N/A|
|EDOC||BetaShares Digital Health and Telemedicine ETF||0.67%||2||N/A||N/A|
While these niche thematic ETFs offer exposure to new and interesting industries, investors need to be cautious as these ETFs are also susceptible to poor returns shutting down, which is why we avoid niche thematic ETFs for our clients at Stockspot.
Verdict and conclusion
We prefer the broad technology ETFs such as NDQ and ASIA rather than niche technology ETFs. We offer NDQ and ASIA as part of our Stockspot Themes and help to blend them into a broadly diversified portfolio for clients. They are both large in size, have deep liquidity and track broad market indexes that are not too niche.
Technology ETFs do come with their own set of risks, and in order to avoid your portfolio being overly exposed to a tech crash like 2000, we recommend clients only invest a small portion of their overall portfolio in these sector ETFs. The core part of our client’s portfolios are invested in a diversified mix of ETFs across different assets including shares, bonds and gold.