Tech sector flows were strong last year despite the sell-off in Q4. According to data from Morningstar, tech sector ETFs listed in Europe saw net inflows of €1.1bn in 2018 versus €939m net inflows the year prior, taking the total net assets to €4.2bn. So far this year, net inflows total €42m, as at 10 April.
Investors have been rewarded for their faith in tech stocks. So far this year usual service has resumed for the FAANGs with Facebook returning 41%, Apple 29%, Amazon 27%, Netflix 40% and Google (Alphabet) 21%.
ETF Stream spoke to five fund buyers, who revealed their favourite tech ETFs listed in Europe they are gaining exposure to and the reasons why they chose that ETF in particular.
Ben Seager-Scott, chief investment strategist at Tilney
There are, in fact, two established ETFs in Europe for investing in Robotics and Automation, the iShares Automation & Robotics UCITS ETF and the L&G Robo Global Robotics and Automation GO UCITS ETF (ROBO) which have had reasonably close performance.
However, despite the cost difference (0.40% versus 0.80%, not cheap for an ETF!), I tend to prefer the methodology of the L&G product, which, somewhat ironically both for a ‘passive’ product and one focused on automation, uses an expert advisory board to make sure that the index catches as much of the value chain as possible.
The benefits of this approach is it gives more diversification within the theme (though it is still a rather narrow investment call) and these next-generation thematic indices give better exposure to the concept of automation that the rather crude industry classifications such as ‘technology’.
Christopher Peel, CIO of Tavistock Wealth
We like the iShares S&P 500 Information Technology Sector UCITS ETF (IUIT). We do a lot of work on what is inside the index and wanted exposure to small, medium and large cap tech companies that are pushing innovation to the next generation. These are the companies that trade at high multiples because, in our view, they are trying to open Pandora’s box and have an impact across a number of industries.
We used to play tech through the Nasdaq but the composition is not as clean. This index is a pure play on the sector and is equally weighted. We like the iShares product as it is the largest. Liquidity is crucial when trading ETFs as we want the bid-offer spreads to be as tight as possible. We typically go for providers that have the most free float and lowest dealing spread on average and, in this case, it is the iShares product.
Furthermore, the product is entirely US-focused with equal exposure to four distinct slithers of the tech space that allows us to diversify our risk in the sector better. It is currently at the higher end of its two-year valuation range but we think it has further to run.
James McManus, head of ETF research at Nutmeg
The Nasdaq 100 index provides diversified exposure to just over 100 stocks with a strong technology focus – Internet, software and semiconductor businesses account for circa 57% of index exposure at present.
We like the Invesco EQQQ Nasdaq-100 UCITS ETF (EQGB) as a core technology focused holding because it efficiently captures exposure to businesses who core operating model relies on technology but also includes those that sit outside of the GICS technology sector following the changes that took place in September 2018 – for example, FAANG stocks such as Amazon, Alphabet, Facebook, and Netflix.
Our investment view when it comes to technology is focused on the disruption of older economy business models, thus it would seem foolish to ignore the FAANG group of stocks that are now a missing element of the GICS defined technology sector, especially given their relative size and impact on returns. This ETF also hedges movements between USD and GBP, which we find useful both in terms of managing currency risk, and also in implementing our investment views.
Hoshang Daroga, investment manager at Copia Capital Management
In the tech space, we have used the iShares Automation & Robotics ETF (RBOT) and the Invesco NASDAQ-100 ETF for our growth/tech exposures in the past.
RBOT, as the name suggests, provides diversified exposure to companies that primarily derive their revenues from the automation and robotics businesses.
As automation and technology gets widely adopted across all industries around the world, this ETF provides investors a channel to participate in the upside generated from a long term structural trend.
Weixu Yan, portfolio manager and head of ETF research at Close Brothers Asset Management
I currently hold iShares Nasdaq 100 UCITS ETF (CNX1) across our passive range of funds as my tech ETF proxy. This is because in it is the most complete. After and prior to the major GICS reclassification in September 2018 I felt there are elements of “tech” that I want to own across the sectors, like Amazon that sits in the Consumer Discretionary (CD), but is engaged in cloud computing, voice recognition (Alexa), machine learning and other “tech” fields.
Now, after the GICS reclassification Alphabet and Facebook have moved from Information Technology (IT) to Communication services (CS) sector. Therefore, to have exposure to Facebook, Alphabet, Amazon and the chip makers that enable the AI development and computing like Intel and Nvidia, I would have to invest across Consumer discretionary, Information Technology and Communication services sectors and getting large exposure to lots of other non-tech companies.
As a result, the Nasdaq 100 index is ideal at providing exposure to the FANGs with addition of the main chipmakers like Nvidia, Intel and AMD but as well as Xilinx and Micron. I do understand that there is still exposure within Nasdaq 100 to companies investors would not typically associate with tech like consumer staples (Pepsico, Costco, Mondelez etc), consumer discretionary (Starbucks, Marriott International etc) and then some biotech companies.
However, overall exposure to these non-tech companies is lower in the Nasdaq 100 index than if buying the three sectors (CD, IT, CS). Furthermore, Nasdaq 100 has exposure to biotech companies that I would feel uncomfortable holding as a standalone investment, but when it is combined in this diversified index it is a great additional exposure.
ETF Stream is hosting the Big Call: Technology Funds event on 12 June where we will be discussing the future of FAANGs, Asian tech, the digital revolution and more.