The ASX has some really good tech shares as potential investments. There are some individual businesses as well as portfolio options.
Businesses that are generating underlying growth have a good chance of producing capital returns over time.
That’s why these three ASX tech shares could be ones to think about:
Xero Limited (ASX: XRO)
Xero is one of the biggest and perhaps one of the best technology companies in the world.
It is carving out a position as a global market leader in cloud accounting. In Xero’s FY21, it achieved total subscriber growth of 20% to 2.74 million. That included 17% growth of UK subscribers to 720,000, 18% growth of North American subscribers to 285,000 and 40% growth of rest of the world subscribers to 175,000.
Xero is investing heavily for growth. It regularly tells investors it has a preference to re-invest cash generated to drive long-term shareholder value.
However, there are certain financial measures that show how profitable this ASX tech share is and how much profit it could make if it wasn’t investing so heavily. Its FY21 gross profit margin was 86%. Whilst operating revenue grew by 18% to NZ$848.8 million, free cashflow rose 110% to NZ$57 million.
Betashares Asia Technology Tigers ETF (ASX: ASIA)
This is an exchange-traded fund (ETF) that is focused on giving investors exposure to Asian technology businesses outside of Japan.
That means it ends up with holdings like Tencent, Samsung Electronics, Alibaba, Taiwan Semiconductor Manufacturing, Meituan, Pinduoduo, JD.com, Infosys, Sea and Netease.
There’s a total of 50 names in the portfolio, around half of the portfolio is based in China and another quarter is listed in Taiwan. A further 20% is in South Korea. India is the only other country with a meaningful weighting at 5.7%.
Despite the annual management fee cost of 0.67% per annum, it has been a very high-performing ETF. Since inception in September 2018, it has produced average net returns of 30.5% per annum.
The underlying Asian businesses continue to grow revenue at a pleasing pace which should help grow the value of the ETF over time.
Bailador Technology Investments Ltd (ASX: BTI)
This is an interesting ASX tech share. It’s run as a growth capital fund. It gives exposure to a portfolio of tech companies with global addressable markets. Bailador invests in private technology companies at the expansion stage.
It has a number of different investments in its portfolio currently, including SiteMinder, Instaclustr, Stackla, Straker Translations Ltd (ASX: STG), Rezdy and Brosa.
Bailador aims to be a long-term investor in the tech businesses when it first takes a position. Its investment normally helps that tech company deliver the growth that it’s trying to achieve.
One of its most recent success stories has been Lendi, which is currently merging with Aussie Home Loans. Bailador invested a total of $5.5 million into Lendi during 2016 and 2017. It got back $13.4 million from the investment with the merger, meaning it made 2.4 times its money at an internal rate of return of 21%.
At the current Bailador share price, it’s valued at a pre-tax net tangible tax (NTA) discount of around 11%.