Investing in ASX tech ETFs

What are ASX tech ETFs? 

ASX tech ETFs are exchange-traded funds (ETFs) listed on the Australian Securities Exchange (ASX) that invest in technology companies. These ETFs expose investors to a diversified portfolio of technology firms, including onshore and offshore companies. 

A brief introduction to ASX tech shares 

Technology shares are involved in various technological fields such as software, hardware, internet services, e-commerce, and telecommunications. Investing in ASX tech shares can provide exposure to the growth potential of the technology sector. 

The technology industry had a difficult 2022, with local and international layoffs. The S&P/ASX All Technology Index (ASX: XTX) fell 32% during 2022 as rising interest rates put pressure on share prices. But things are looking brighter in 2023, with the index rising since the start of the year. 

And exchange-traded funds…

Exchange-traded funds, or ETFs, are investment funds that are traded on stock exchanges, similar to shares. ETFs are designed to track a specific index, such as a stock market, bond, or commodity index, and provide investors with diversified exposure to a wide range of assets in a single investment.

ETFs can be bought and sold throughout the trading day on stock exchanges, making them a convenient and flexible investment option for investors. They also cover various asset classes, including shares, bonds, commodities, and currencies. ETFs can provide a quick and inexpensive way for investors to diversify their portfolios or gain exposure to new sectors. 

How to invest in ETFs in Australia 

Investing in ETFs in Australia is a relatively straightforward process. You'll need to open a brokerage account with a licensed stockbroker or online broker to allow you to trade in the ASX-listed securities. 

Once you have done this, research and select the ETF you wish to invest in. Many different ETFs are available on the ASX, covering a wide range of asset classes, sectors, and investment strategies. Once you've selected an ETF, you will log in to your brokerage account and place your order. Like stocks, you can buy and sell ETFs on the ASX during trading hours.

Why invest in ASX tech ETFs? 

Investing in ASX tech ETFs can offer several potential benefits to investors. These include exposure to a growing sector and potential access to the performance of global tech companies. There are diversification benefits thanks to ETFs investing in a broad range of technology companies, which can help spread out investment risk. 

Technology companies can experience rapid growth and innovation, leading to potentially high returns on investment. The industry is constantly evolving and growing, with new technologies and products being developed. 

This can create opportunities for investors to capitalise on emerging trends and markets. The COVID-19 pandemic demonstrated the sector's resilience, with many companies experiencing growth despite the economic downturn. 

ASX tech ETFs are generally considered a cost-effective investment option. They have lower fees and expenses than actively-managed mutual funds, and investors can avoid high transaction costs associated with buying and selling individual stocks. ASX tech ETFs also offer investors liquidity, as investments can be bought and sold during trading hours. 

What about international funds? 

There are many technology-focused ETFs listed on the ASX that give exposure to international shares. In fact, most technology ETFs listed on the ASX provide investors with underlying exposure to companies listed on overseas exchanges. 

Examples include 

• BetaShares NASDAQ 100 ETF (ASX: NDQ), which includes 100 of the largest non-financial companies listed on the NASDAQ exchange
• BetaShares Global Cybersecurity ETF (ASX: HACK), which invests in companies involved in cybersecurity, including those that provide hardware, software, and consulting services
• VanEck Video Gaming and eSports ETF AUD (ASX: ESPO), comprising companies involved in video game development, eSports, and related hardware and software globally 
• iShares Future Tech Innovators ETF (ASX: ITEK), which provides exposure to disruptive, technology-themed companies driving innovation and providing solutions to global challenges.

The number of technology companies listed in Australia is limited, albeit growing. The world's largest technology companies are listed on offshore stock exchanges, but Australian investors can gain exposure to them via ETFs. 

There are also many technology-themed ETFs listed on offshore stock exchanges. To invest in internationally-listed ETFs, investors must open an account with a broker that provides access to these markets. 

Top tech ETFs on the ASX

There are a range of technology-focused ETFs on the ASX. Here are three of the largest ranked by market capitalisation from highest to lowest.

BetaShares NASDAQ 100 ETF

This ETF aims to track the performance of the NASDAQ-100 Index (before fees and expenses). The NASDAQ-100 comprises 100 of the largest non-financial companies listed on the NASDAQ. It holds shares in Apple Inc (NASDAQ: AAPL), Microsoft Corp (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and Nvidia Corporation (NASDAQ: NVDA). 

BetaShares S&P/ASX Australian Technology ETF

This ETF tracks the performance of the S&P/ASX All Technology Index (before fees and expenses). It provides exposure to leading ASX-listed companies in a range of tech-related market segments, including WiseTech Global Ltd (ASX: WTC), Xero Limited (ASX: XRO), and Seek Ltd (ASX: SEK). 

Global X Morningstar Global Technology ETF

This ETF seeks to provide investment results that generally correspond to the price and yield performance, before fees and expenses, of the Morningstar Developed Markets Technology Moat Focus Index. This index includes companies such as Salesforce Inc (NYSE: CRM), Intel Corporation (NASDAQ: INTC), and Adobe Inc (NASDAQ: ADBE).  

Pros of investing in tech ETFs

Exposure to growth: Technology is a rapidly growing industry with the potential for long-term growth. Investors can benefit from the growth opportunities it presents by investing in tech ETFs.

Potential for outperformance: Historically, the technology sector has outperformed the broader market over the long term due to innovation, disruption, and increased demand for technology products and services.

Easy to invest: Investing in tech ETFs is easy and convenient and can be done through an online brokerage account.

And the cons?

Volatility: Technology stocks can be volatile, which can lead to fluctuations in the value of technology ETFs.

Rapid technological change: This can result in companies becoming rapidly outdated or disrupted. Predicting which companies or sub-sectors in the technology industry will perform well over the long term is challenging.

Higher expense ratios: Some technology ETFs may have higher expense ratios than other ETFs, which can eat into investor returns over the long term.

How have global events impacted tech ETFs?

Global events can have a significant impact on tech ETFs. Technology companies often have a global presence, so they are affected by changes in economic and political conditions worldwide. 

The COVID-19 pandemic led to increased demand for technology products and services, such as remote work and communication tools, which benefitted many technology companies. However, the pandemic also led to supply chain disruptions, production delays, and reduced consumer spending, negatively impacting some.

Political events and regulatory changes can also impact technology companies and ETFs, as can advancements in the technology itself. The rise of cloud computing and artificial intelligence has led to new ETFs focusing on these sub-sectors. 

However, as technology evolves, some companies or sub-sectors may become obsolete, which could negatively impact technology ETFs that are heavily invested in those companies or sub-sectors.

Are ASX tech ETFs a good investment? 

Whether ASX tech ETFs are a good investment for you will depend on your financial situation, risk tolerance, investment goals, and portfolio diversification needs. 

Technology ETFs have several potential benefits, such as diversification, exposure to a growing sector, cost-effectiveness, and liquidity. 

However, it's important to note that investing in ASX technology ETFs also comes with risks, including market risks, volatility, and the risks of rapid technological change. It's essential to carefully consider the risks and potential returns before investing in any ASX technology ETF.