Asset management business BetaShares has been considering whether it’s time for investors to look at tech shares such as the ones in the Betashares Nasdaq 100 ETF (ASX: NDQ).
BetaShares’ Alex Holmes referenced the recent global market commentary that investors have been moving from high-growth tech names into ‘value’ shares.
Mr Holmes pointed to a few different catalysts for this change.
There have been the positive vaccine rollout updates over the last several months. In November 2020, just after the US election, the world learned that the COVID-19 vaccines from BioNTech-Pfizer and Moderna had very high efficacy rates. That means those vaccines were efficient at reducing the impacts of COVID-19 on people. The number of COVID daily deaths in the US has fallen significantly since the vaccine rollout.
Another factor that Mr Holmes pointed to was the reopening of the global economy. COVID-19 had been heavily impacting certain industries, but these effects are now unwinding.
The final factor was expectations of rising inflation. That might change the timeline of interest rate rises.
The divergence of performance
Mr Holmes pointed out that the financials, materials and energy sectors have performed well in 2021 as investors shifted their focus to “perceived undervalued areas of the market. Despite that, the NASDAQ 100 is hitting new heights – it has risen by around 10% in the year to date.
But, despite the rising prices of those technology names, the forward price to earnings ratio (p/e ratio) of the NASDAQ 100 reduced from 32 in September 2020 to 28 in May 2021.
The unprofitable tech companies are what is causing the overall tech underperformance, according to BetaShares, not the high-quality global tech names that have lots of cash on their balance sheet such as Apple, Alphabet and Facebook.
He also pointed out that whilst the NASDAQ 100 is above recent average levels, it is nowhere near the forward p/e ratio peak of 79.4 in March 2000 during the tech crash just over two decades ago.
A return to performance for high quality tech?
Mr Holmes and BetaShares thinks that if investors turn more cautious, it could lead to a shift towards quality tech companies like the mega cap tech shares which have a large influence on our daily lives. Examples include mobile apps and cloud streaming services.
He also pointed out that historical data seems to suggest that large cap tech shares can perform positively despite expectations of rising inflation, and are not dependent on low inflation.
What investment can give US tech exposure?
BetaShares has an exchange-traded fund (ETF) called Betashares Nasdaq 100 ETF, which invests in the NASDAQ 100.
The biggest positions in the portfolio now are: Apple, Microsoft, Amazon.com, Alphabet, Facebook, Tesla, Nvidia, PayPal and Adobe.
It has an annual management cost of 0.48% per annum. Bearing in mind that past performance is not an indicator of future performance, since inception in May 2015 the Betashares Nasdaq 100 ETF has delivered an average return per annum of almost 21%.