It's been 6 months since the launch of the S&P/ASX All Technology Index (ASX: XTX), or the 'All Tech'. Launched at the end of February, the new index was just in time for the March market meltdown, which saw its value tumble. The All Tech fell 42% from 2,018 at inception to 1,171 at its March low.
But the All Tech has staged a strong comeback, with tech shares leading the post-March market rally. The index is now up 92.9% from its March low and nearly 12% since inception. By comparison, the S&P/ASX 200 Index (ASX: XJO) is up 32.7% since its March low, and down 13.6% since 24 February, when the All Technology Index commenced.
New index representative of tech sector
The All Technology Index was designed to be representative of Australia's tech sector. This will enhance the profile and understanding of ASX tech companies and improve opportunities for investors. It provides a benchmark of ASX technology companies and facilitates investment in the sector.
The index provides broad exposure to a portfolio of technology shares, with a scope that goes beyond the GICS Information Technology sector. Technologically focused companies from a number of industries are included, such as those operating online marketplaces or providing healthcare technology.
The case for the index is compelling. Over the 5 years prior to its launch, the IT sector has had more IPOs than any other sector on the ASX. Over the 3 years prior to the launch of the All Technology Index, the ASX 200's annualised total return was around 10%. Over the same period, the technology companies that would have been in the index (had it existed) would have returned more than 20%.
The index originally consisted of 46 companies with a combined market cap of $100 million. Ten of these companies were considered 'unicorns' (valued at over $1 billion) when the index debuted. Key components of the index can be found below:
|
Company |
Market Cap |
Business |
|
Afterpay Ltd (ASX: APT) |
$19.4 billion |
Australia's best known buy now, pay later provider, headquartered in Melbourne. |
|
REA Group Limited (ASX: REA) |
$14.1 billion |
A digital advertising company specialising in real estate and home loans and based in Melbourne. |
|
Xero Limited (ASX: XRO) |
$13.2 billion |
An accounting software provider headquartered in Wellington, New Zealand. |
|
Computershare Limited (ASX: CPU) |
$7.3 billion |
Provides share registry services and is based in Melbourne. |
|
WiseTech Global Ltd (ASX: WTC) |
$6.7 billion |
Cloud-based logistics software provider based in Sydney. |
|
NEXTDC Ltd (ASX: NXT) |
$5.1 billion |
A data storage company based in Brisbane. |
|
Carsales.com Ltd (ASX: CAR) |
$4.5 billion |
Owns online marketplaces for vehicle sales, headquartered in Melbourne. |
|
Appen Ltd (ASX: APX) |
$4.4 billion |
Provides training data for machine learning and artificial intelligence headquarter in Chatswood, NSW. |
|
Altium Limited (ASX: ALU) |
$4.3 billion |
Provides software used to design printed circuit boards and is based in San Diego in the United States. |
|
Link Administration Holdings Ltd (ASX: LNK) |
$2.2 billion |
Provides data management, analytics, and administration services to the superannuation industry from its headquarters in Sydney. |
|
Kogan.com Ltd (ASX: KGN) |
$1.8 billion |
Online retailer of diversified products and services. |
|
EML Payments Ltd |
$1.1 billion |
Payment solutions provider offering prepaid, gift, and incentive cards used in everything from gambling to salary packaging. |
Index components outperform
The outperformance of the All Technology Index is thanks largely to Afterpay, which is up more than 685% from its March low. The buy now, pay later provider has powered through the downturn, reporting a 112% increase in underlying sales in FY20. Performance accelerated in the fourth quarter with sales up 127% to $3.8 billion.
But Afterpay wasn't the only notable contributor to the index's outperformance. The Appen share price is up more than 110% from its March low, with the artificial intelligence data provider reporting 10% revenue growth over the full year.
The Xero share price is up 58% from its March low. Xero's financial year ends 30 March, so the coronavirus crisis had a very limited impact on its most recent results. The accounting software provider reported 29% growth in annualised monthly recurring revenue as well as 30% growth in operating revenue over the year.
Kogan shares have also outperformed, gaining around 355% from their March lows. Kogan has benefitted from the shift to online shopping prompted by the pandemic, reporting growth of 95% in gross sales in 4Q FY20, and 115% growth in profit.
New additions to the index
A rebalance in June added 5 new shares to the index and resulted in one removal. Over The Wire Holdings Ltd (ASX: OTW) was dropped from the index. New additions were Seek Limited (ASX: SEK), Tyro Payments Ltd (ASX:TYR), Temple & Webster Group Ltd (ASX: TPW), Nitro Software (ASX: NTO), and RPMGlobal Holdings Ltd (ASX: RUL).
These new additions add further depth and breadth to the index:
|
Company |
Market Cap |
Business |
|
Seek |
$7.7 billion |
Online employment advertising. |
|
Tyro Payments |
$1.8 billion |
Payment system provider enabling debit and credit card payments. |
|
Temple & Webster |
$943 million |
Online furniture and homewares retailer. |
|
Nitro Software |
$377 million |
Develops software used to create, edit, sign, and secure PDF files and digital documents. |
|
RPMGlobal Holdings |
$219 million |
Provides technical consulting, training and software licensing and support products and services to the mining industry. |
Since joining the index, the Temple & Webster share price has gained 38% with gross sales in June up 130% over the prior corresponding period. Tyro Payments has also seen its share price rise over 5% since joining the index in June, with transaction volumes recovering in June giving a 15% increase in transaction volumes in FY20.
Foolish outlook
The All Technology Index had a rocky start but has bounced back from the March meltdown to lead the share market recovery. Many of its constituent shares are benefitting from trends arising from the spread of COVID-19, including the shift to digital commerce and payments. This has seen share prices rise, boosting the overall index.
