Tech shares are once again dominating the financial headlines today.
Many listed tech companies are trading at or near record highs. And many could see their share prices run far higher from here.
The massive growth we're witnessing in the technology sector isn't anything new. The trend was already well-established back in the 80s.
Before moving on, let's address the ageing elephant in the room. That's right, the dreaded dot-com bubble. Though long dead, its spectre still scares some investors away from tech shares, even to this day.
We'll get to why I think that's a mistake in a moment. But first…
The price of chasing the herd
I'm sure you know what happened to technology shares in the early 2000s. After driving the tech heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) to rapid record highs, the tech bubble burst. Badly.
From March 1995 through March 2000, the Nasdaq gained a whopping 518%. From March 2000 to September 2002 it gave back a lot of those gain, falling a gut-wrenching 75%.
But here's the thing.
The blistering gains achieved by many of the technology shares in the late 1990s were driven by wild speculations. It was the dawn of the age of the internet. Everyone and their dog were buying computers to get connected to the web. And investors were paying wild sums of money for a stake in things as relatively trivial as domain names.
The resulting bust sent a slew of stocks into bankruptcy. But most of the quality companies survived.
Take Amazon.com, Inc. (NASDAQ: AMZN), for example. The share price dropped more than 50% during the dot-com bust. But today it's up an astounding 2,800% from its peak before the bust.
It's companies like Amazon that are driving the Nasdaq to almost daily new highs. After closing for another new record high yesterday (overnight Aussie time), the Nasdaq stands 120% higher than it did at the very peak of the dot-com bubble. And it's up more than 793% from the September 2002 trough.
These are the kinds of companies you want in your portfolio. And as I'll show you below, it's not just United States listed technology shares you'll want to consider owning. There are plenty of great ASX tech shares right here in Australia with sky-high potential.
This is no dot-com bubble
I believe the big gains we're witnessing in the technology sector today are far different from what we saw in the late 90s.
Sure, there is some speculation going on. And yes, some tech shares are overvalued and will lose some — or all — of that value in time.
However, I believe many technology shares are a great place to invest some of your money for the longer term.
As we've all witnessed over the past decades, the pace of technological innovation is speeding up. And with the rise of deep learning machines and eventually true artificial intelligence, this is only likely to increase.
A more immediate tailwind for many tech shares is the COVID-19 pandemic. Or more specifically the lockdown measures that are seeing millions (if not billions) of people turn to working, shopping and socialising from home.
3 investments for diversified exposure to tech shares
For a truly diversified technology portfolio, you not only want to own shares in 15 or more shares, you also want to own shares in some international companies.
If you don't have the time or resources to research that many shares, a simpler way to gain that diversified exposure is with ASX listed exchange traded funds (ETFs).
So, let's get to it…
First up is VE CH NEW/ETF (ASX: CNEW), or the VanEck China New Economy ETF. This ETF isn't strictly a technology fund. Chinese tech companies do make up the majority of its top holdings. But it also holds healthcare, consumer staples and discretionary stocks.
CNEW commenced trading on the ASX in November 2018. Since then, the share price is up 97.8%. Year-to-date it has gained 40.3%.
Despite ructions with the US and other Western governments, I believe that, long term, China's technology sector has huge growth potential ahead. CNEW is one way to get in on that growth.
Next up we look to the US. As mentioned above the Nasdaq just reached another new record high. And I believe the best stocks in the index will, long term, go far higher.
One way to gain immediate broad exposure to US tech shares is with the Betashares NASDAQ 100 ETF (ASX: NDQ). It holds the 100 largest, non-financial companies listed on the Nasdaq. The top 10 are all household names.
NDQ started trading on the ASX in May 2015. Since then, the share price is up 150.5%. Year-to-date it has gained 21.1%.
Last, but certainly not least, we turn to ASX tech shares. Australia hasn't always been a leading player in the tech sector. But that's changing rapidly.
If you're looking to gain exposure to a broad range of leading ASX tech shares, I recommend looking into BETAATEC/ETF (ASX: ATEC), aka the BetaShares S&P/ASX Australian Technology ETF.
ATEC holds some of Australia's largest and most innovative tech companies. It's a new arrival on the ASX, trading since 6 March 2020. It was an inauspicious time to launch, as the share price tanked 25% over the next two weeks. But since 20 March, it has been on a tear, up more than 72%.
I know all these recent gains can make it feel like the ship has sailed on these investments. But if you've got a longer-term investment horizon (say 3 to 5 years), I believe there are far more gains ahead for them.
