BetaShares has listed a first-of-a-kind ETF that tracks the Australian technology sector.
The fund, which is called the BetaShares S&P/ASX Australian Technology ETF, will invest in 46 Aussie tech companies, including famous names like Afterpay, Carsales.com, REA Group, WiseTech Global and Xero. Companies are weighted by market capitalisation, while BetaShares charges a fee of 0.48% a year.
The index the fund tracks has been a solid performer, providing an annual return of 17.4% a year over the past six years, compared to the 9.0% a year delivered by the ASX 200.
But what do ETF buyers and experts think? We asked some for their opinions.
Chris Brycki, CEO of Stockspot
It's always tempting to bet on the most popular trends of the day. Hindsight bias makes us believe the recent past is going to repeat. But it rarely does.
Right now tech stocks are the hottest theme on ASX since the dramatic rise of the share prices of companies like AfterPay, Xero and Appen. Rather than chasing what's hot today, to reduce risk, we advise clients to buy a mix of low-cost, diversified ETFs that includes some tech stocks but also other sectors.
The benefit of broad market ETFs is that successful tech companies are naturally becoming bigger in them as they grow within the index. So you still get tech exposure, but with broad ETFs, you also have the diversification benefits of owning other sectors of the economy.
David Lane, Director of Pitcher Partners
If the ETF were available for investment a year ago, investors could have increased their investment by more than 50%, which is almost double that of the broader ASX.
Many of the companies in this market are very expensive based on traditional fundamentals, and the share prices can be highly volatile. While the momentum has been with these stocks, they have performed exceptionally.
However, if there is a turn in market sentiment towards these stocks, the value of the ETF could be severely impacted. WiseTech Global – has fallen almost 35% over the last week following an outlook downgrade due to the possible impact from Coronavirus. This is one the key risks with investment in this sector – with companies ‘priced for perfection’, any change in outlook can have a severe impact on the share price.
This ETF is certainly one that has the potential to ‘supercharge’ a portfolio, but the risk profile is not for the faint-hearted.
James Gerrard, Director, FinancialAdvisor.com.au
There are currency risks and also concentration risks due to the majority of companies in current technology ETFs being US-based.
Nevertheless, the BetaShares’ tech ETF will be an excellent way for local ETF investors to buy into a pool of Australian technology companies.
It will also be good to Australian listed technology sector as we are likely to see an increase in attention and trading support from investors.
Patrick Garrett, CEO of Six Park
The tech sector has its own risk-reward profile and commensurate volatility. So investors should understand how it fits into their overall investment portfolio construction.
The suitability and attractiveness of this new ETF depends on how much an investor wants to place a specific bet on the tech sector, versus owning a broader equity ETF that has material tech exposure in the index.