Exchange-traded funds (ETFs) can be a really useful way to gain the benefits of diversification. They can also be used to gain targeted exposure to certain areas of the market such as technology through tech ETFs.
While the S&P/ASX 200 Index (ASX: XJO) may not have much technology exposure, it's possible to significantly increase tech exposure by investing in some funds that are designed to follow an index based on video gaming or cloud computing businesses.
Those are the two types of tech ETFs I'm going to write about in this article. They both have promising futures, in my opinion.
Betashares Cloud Computing ETF (ASX: CLDD)
As the name suggests, this EFT is focused on cloud computing businesses.
What that specifically means is that businesses in this portfolio must have a minimum threshold share of revenue from cloud computing services. The ETF's index is constructed so that it prioritises companies that generate the majority of their revenues from cloud-based services, according to BetaShares.
The fund manager has outlined the positive trend that cloud computing businesses are exposed to:
Cloud computing has been one of the strongest-growing segments of the technology sector, and given much of the world's digital data and software applications are still maintained outside the cloud, continued strong growth has been forecast.
At 8 September 2022, these are some of the big names in the portfolio: Netflix, Paycom Software, DigitalOcean, Qualys, Dropbox, SPS Commerce, Akamai Technologies, Salesforce.com, Wix.com and Box.
2022 has been rough. The Betashares Cloud Computing ETF has dropped by 34% since the start of the year, enabling us to invest at what I see as a much cheaper and more attractive price.
VanEck Video Gaming and Esports ETF (ASX: ESPO)
The video gaming sector is another area that has seen quite a lot of growth over the last decade.
Video gaming has been around for decades, but there has been a significant increase in gamers in the last few years. E-sports, in particular, has been growing in popularity, which is a key reason why I like this tech ETF.
According to VanEck, the competitive video gaming audience is expected to reach 646 million people globally in 2023, thanks partly to the increasing number of people using the internet.
E-sports revenue has reportedly increased by an average of 28% per annum since 2015. VanEck said that e-sports had created new potential revenue streams from game publisher fees, media rights, merchandise, ticket sales and advertising.
There are a total of 25 holdings in the portfolio. At the moment, these are the biggest positions in the portfolio: Activision Blizzard, Tencent, Nvidia, Roblox, Advanced Micro Devices, Nintendo, Netease.com, Electronics Arts and Bandai Namco.
The VanEck Video Gaming and Esports ETF has seen a 27.6% decline in value in 2022.
Foolish takeaway
I like the look of both of these tech ETFs because the underlying businesses are seeing revenue growth, growing globally, and now they're a lot cheaper. This is why I'd happily buy some right now.
