One of the most exciting entrants into the world of index investing in 2020 has undoubtedly been the S&P/ASX All Technology Index (ASX: XTX), or the 'All Tech Index'.
Before this index was launched back in March, there was no easy way to track the performance of ASX tech shares. Although many of the shares in this index happen to come under the 'Information Technology' ASX sector, there are some that don't. But with the All Tech Index's launch, there was finally a single measure of the performance of the ASX's best tech stocks, regardless of which sector they belong to.
So, as a refresher, the S&P/ASX All Technology Index was first launched at perhaps the worst possible time for a debut: 24 February 2020. I say that because this date happened to be fairly close to the ASX 200's peak, before the coronavirus-induced market crash hit us in March. Indeed, by 23 March, the newly formed index was down more than 42%.
But since that date, the index has been on an incredible run. At 2,886.7 points, it is currently up (at the time of writing) 43% year to date, and almost 150% from the levels we saw on 23 March.
Before we start, let's just go over how the All Tech Index actually works. According to the ASX, there are a few criteria for a company to be included in this index. These include a requirement that 30% of a company's shares be liquid and available for trading, a market capitalisation of at least $120 million and a $120,000 minimum in daily trading volume. The index is rebalanced quarterly, with new IPOs eligible for inclusion after one quarter.
The top 20 ASX tech shares in the All Tech Index
So let's breakdown the ASX's newest index, and look at how its 20 largest constituents performed in 2020:
| ASX tech share | Year to date performance (as of 30 December) | Index weighting | Market capitalisation |
|---|---|---|---|
| Afterpay Ltd (ASX: APT) | 285.18% | 21.7% | $33.64 billion |
| Xero Limited (ASX: XRO) | 83.54% | 13% | $21.47 billion |
| Seek Limited (ASX: SEK) | 27.3% | 7.7% | $10.11 billion |
| Computershare Ltd (ASX: CPU) | (12.48%) | 5.7% | $7.9 billion |
| REA Group Limited (ASX: REA) | 41.63% | 5.7% | $19.68 billion |
| Nextdc Ltd (ASX: NXT) | 87.29% | 4.3% | $5.59 billion |
| Carsales.com Ltd (ASX: CAR) | 20.13% | 3.8% | $4.97 billion |
| WiseTech Global Ltd (ASX: WTC) | 31.52% | 3.7% | $9.97 billion |
| Altium Limited (ASX: ALU) | (0.32%) | 3.2% | $4.48 billion |
| Link Administration Holdings Ltd (ASX: LNK) | (4.29%) | 2.3% | $2.99 billion |
| Appen Ltd (ASX: APX) | 11.81% | 2.2% | $3.03 billion |
| TechnologyOne Ltd (ASX: TNE) | 0.36% | 1.7% | $2.66 billion |
| Iress Ltd (ASX: IRE) | (17.45%) | 1.6% | $2.09 billion |
| Megaport Ltd (ASX: MP1) | 38.81% | 1.6% | $2.24 billion |
| Webjet Limited (ASX: WEB) | (44.57%) | 1.4% | $1.78 billion |
| Pro Medicus Limited (ASX: PME) | 55% | 1.3% | $3.6 billion |
| Kogan.com Ltd (ASX: KGN) | 158.63% | 1.2% | $2.04 billion |
| EML Payments Ltd (ASX: EML) | 7.61% | 1.1% | $1.54 billion |
| Redbubble Ltd (ASX: RBL) | 414.68% | 1.1% | $1.52 billion |
| Codan Ltd (ASX: CDA) | 54.73% | 1% | $2.04 billion |
Not all tech shares see gains in 2020
As you can see, it's been an overall positive year for the technology shares in this index. But there have also been some losers as well. Webjet stands out as the clear wooden spoon recipient here with a near-45% collapse in value over 2020 so far. We don't have to probe too far into Webjet's fundamentals to know why. As a travel company, the pandemic has been devastating for Webjet, which had to hold a highly dilutive share purchase plan earlier in the year to stay afloat.
Computershare, Iress and Altium were the other shares that have recorded year-to-date losses. Altium's is a particularly interesting case. Altium shares rose more than 65% in value over 2019, and by more than 55% in 2018, so 2020 would have come as quite the shock for shareholders used to WAAAX high-octane growth from this company. Altium just never seemed to get its momentum back after the March share market crash. It's possible that investors are finding the 6–12% revenue growth forecast for FY2021 just a little too boring compared with some of the other top ASX tech performers.
Afterpay and Xero dominate tech returns
On that note, let's talk Afterpay and Xero, the two standout companies in this technology index. With current weightings of 21.7% and 13%, and year-to-date performances of 285% and 83.5%, respectively, these two companies have largely carried the All Tech Index in 2020.
Afterpay has had a phenomenal year. It managed to comprehensively shake off investor concerns at the start of the pandemic that it would be facing a recession-driven wave of defaults and delinquencies. Then the buy now, pay later leader announced a partnership with Chinese e-commerce giant Tencent Holdings back in May. With Tencent acquiring a 5% stake in the company, investors were reassured on Afterpay. It's been onwards and upwards from there. The company spent the rest of the year breaking new all-time highs, most recently just a few days ago.
Also helping this company's momentum were its FY2020 earnings. Back in August, Afterpay reported underlying sales growth of 112% and a 73% rise in earnings before interest, tax, depreciation and amortisation (EBITDA). Over the same period, Afterpay reported a 116% rise in global active customers. You could say that investors haven't really been given a reason not to keep buying Afterpay in 2020.
Xero has delivered a similar growth story. Just last month, Xero reported stellar growth numbers for the six months ending 30 September. It announced revenue growth of 21% and subscriber growth of 19%. All in a period of just six months — no wonder Xero was also in investors' sights in 2020.
A final note
For other top performers on the All Tech Index, it simply came down to the companies' ability to turn the lemons of the pandemic into lemonade. Carsales benefitted from a tight market for second-hand vehicles in 2020. REA Group from a red-hot property market. Nextdc from continuing demand for back-end data services.
While there have been winners and losers in this index, I think we can fairly say that ASX tech shares haves been agile and innovative this year as a whole. And that has led to a stellar debut year for the All Technology Index.
