Australian and global technology stocks have come under pressure as investors reassess the risks and rewards of the AI boom. Accordingly, it could be an ideal time to protect your portfolio through ASX ETFs.
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What's going on with tech and AI?
After a period of strong gains driven by optimism around artificial intelligence, markets have turned more cautious.
This has been driven by growing concern that AI could both fail to justify lofty valuations and disrupt the traditional software business models many ASX tech companies rely on.
Many Software-as-a-service (SaaS) companies and online classified platforms have been sold off as investors worry that generative AI could replicate core software functions.
We've seen this fear deplete the share price of many ASX stocks including REA Group Ltd (ASX: REA) and CAR Group Ltd (ASX: CAR).
While discourse amongst experts suggests this fear is largely overblown, it hasn't stopped the steady decline due to negative sentiment.
The sell-off has also been amplified by weaker leads from Wall Street and a rotation into more defensive, income-generating sectors such as banks and resources, leaving local tech stocks exposed to a sharp sentiment reversal.
How to protect your portfolio with ASX ETFs
For investors who are suffering with significant exposure to these tech shares, it could be an ideal time to gain exposure to other sectors.
There are several ASX ETFs that target sectors that are less exposed to these fears.
Keep in mind none of these are completely immune to broad market sell-offs – they can still decline if overall sentiment turns bearish.
However they could hold up better relative to tech-focused or growth-oriented stocks during periods of risk aversion.
iShares Global Consumer Staples ETF (ASX: IXI)
This fund provides investors with the performance of the S&P Global 1200 Consumer Staples Sector Index.
The index is designed to measure the performance of global consumer staples companies that produce essential products, including food, tobacco, and household items.
These companies tend to have steady earnings regardless of tech cycle swings.
Consumer staples are viewed as defensive because the demand for these products stays relatively stable even when markets wobble.
BetaShares Australian Quality ETF (ASX: AQLT)
This fund targets companies with strong profitability and balance sheets, which can help reduce volatility compared with growth or tech-heavy funds.
These companies tend to be more resilient in market downturns.
By sector, it has a large exposure to ASX dominant sectors like financials (35.9%) and materials (16.2%).
BetaShares Global Banks ETF – Currency Hedged (ASX: BNKS)
This ASX ETF could appeal to investors seeking protection from an AI-driven tech sell-off.
It provides exposure to a very different part of the market, namely global banks rather than high-growth software or platform companies.
SaaS or online marketplaces whose valuations hinge on future earnings growth and AI disruption narratives.
Meanwhile, banks generate profits primarily from net interest margins, lending volumes and credit quality.
Essentially, their earnings are tied to economic activity.
Foolish Takeaway
It's important for investors not to abandon AI or tech completely.
These sectors remain powerful drivers of productivity, earnings growth and long-term innovation across the global economy.
Rather, the recent global fears have driven valuations down, reminding investors of the importance of diversification.
