Why this ASX tech ETF can ride the market gains higher

Why this one ASX tech ETF could help investors investing in booming international tech stocks without putting their eggs in one basket.

| More on:
Block letters 'ETF' on yellow/orange background with pink piggy bank

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) edged 0.7% lower yesterday and continues to be volatile in 2020. However, I think one ASX tech exchange-traded fund (ETF), ETFS Morningstar Global Technology ETF (ASX: TECH), could be the answer.

However, there's a couple of segments that have been surging since the March bear market. Among those are tech and gold but investors don't know where to place their bets given current uncertainty.

Here's why one ASX tech ETF could be the answer to capturing more upside in 2020.

Why this ASX tech ETF can track the market higher

I think the "two-speed" economy we're seeing is a big factor here. A broad market ETF can be great for diversification and peace of mind.

However, a sector-focused ETF like ETFS Morningstar Global ETF can be a useful part of tactical portfolio allocation.

It is still a broad fund with 34 holdings including some of the biggest tech shares on the market. Among the top 10 holdings are industry leaders like Microsoft Corp (NASDAQ: MSFT) and salesforce.com (NYSE: CRM).

That's good news for investors seeking easy exposure to the surging international tech stocks. 

I think this ASX tech ETF provides broad exposure to the industry without needing to bet on individual companies.

What's not to like?

For one, investing in this ASX tech ETF means you're expecting tech to continue to outperform. The tech sector is hot right now and will likely see further growth, but much of that is already priced in.

For instance, the Xero Limited (ASX: XRO) share price trades at a price to earnings (P/E) ratio of 4,700. That means a lot of that expected earnings growth is already factored into market values.

On an ETF specific level, the ETFS Morningstar Global ETF does come at a cost. The management fee is a lofty 0.45% per annum according to the fund's website.

That may not seem like much, but it does add up over time compared to some funds charging as little as 0.07% per annum.

There's also currency risk to consider. This ASX tech ETF is unhedged which could be good or bad, but leaves you exposed to currency risk which could eat into gains.

Foolish takeaway

If you're after a globally diversified ASX tech ETF, I think this ETF Morningstar fund is a good option.

It's not without its drawbacks, but it could be an easy option for investors with FOMO on the tech sector bull run.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ETFS Morningstar Global Technology ETF and Xero and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A young woman lifts her red glasses with one hand as she takes a closer look at news about interest rates rising and one expert's surprising recommendation as to which ASX shares to buy
Technology Shares

WiseTech share price higher on big news

This tech stock has found its new leader.

Read more »

Man holding a calculator with Australian dollar notes, symbolising dividends.
Technology Shares

$10,000 invested in DroneShield shares 5 years ago is now worth…

You might be laughing all the way to the bank if you had done this.

Read more »

Happy woman working on a laptop.
Technology Shares

Up 60% since April, why this $40 billion ASX 200 tech stock remains a 'compelling buy' today

A leading expert believes this $40 billion ASX 200 tech stock has a lengthy growth runway ahead of it yet.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

DroneShield shares sink 7% despite big news

Let's see what's going on with this market darling on Thursday.

Read more »

A man activates an arrow shooting up into a cloud sign on his iPad.
Technology Shares

Up 25% since April, is it too late to buy Xero shares today?

A leading expert gives his verdict on the growth outlook for Xero shares.

Read more »

Man looking at digital holograms of graphs, charts, and data.
Technology Shares

2 amazing ASX tech shares I wish I'd bought last year

These tech companies are among the world’s best companies.

Read more »

A man in a business suit and tie places three wooden blocks with the numbers 1, 2, and 3 on them on top of each other.
Broker Notes

3 reasons to buy this booming ASX All Ords tech stock today

A leading broker forecasts more gains to come from this surging ASX All Ords tech stock.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »