Exchange-traded funds (ETFs) can provide exposure to compelling industries that have good growth potential.
ASX tech ETFs can give investors access to global technology companies of a certain sized market capitalisation that aren't as readily accessible on the ASX.
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VanEck Video Gaming and Esports ETF (ASX: ESPO)
The ESPO ETF invests in a portfolio of large businesses involved in video game development, e-sports and related hardware and software globally.
At the time of writing, the ASX tech ETF is invested in 24 companies, including Tencent, Nvidia, Netease, Advanced Micro Devices, Nintendo, Electronic Arts, Take-Two Interactive Software and Bandai Namco.
According to VanEck, the competitive video gaming audience was expected to reach 646 million people globally in 2023. E-sports revenue growth has increased by an average of 28% per year since 2015, providing a very useful boost for the underlying companies.
E-sports is unlocking a number of new revenue streams, including game publisher fees, media rights, merchandise, ticket sales and advertising.
Video gaming has been around for decades, and I think revenue can keep growing, particularly in regions like Asia, the Middle East and Africa. I'd suggest that growing revenue can help profit and boost the underlying valuations.
Betashares Cloud Computing ETF (ASX: CLDD)
The idea of this ASX tech ETF is that it gives investors exposure to leading companies in the global cloud computing industry.
BetaShares, the provider of the investment fund, says:
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 the time of writing, some of the biggest positions (out of 36) include Zscaler, Qualys, Dropbox, Akamai Technologies, Digital Realty Trust, Netflix, Wix.com, Salesforce.com, Zoom Video, Shopify and so on.
I'd suggest that plenty of cloud businesses have impressive gross profit margins because of the nature of software – there's relatively little cost to send a service over the internet once the company has reached a decent scale as these businesses have.
With a high gross profit margin, it means that revenue growth can significantly boost other levels of profit, such as the earnings before interest, tax, depreciation and amortisation (EBITDA) margin.
There appear to be some good tailwinds for the underlying businesses as more people and services head online. I think this group of businesses can perform over the long term, particularly after the recent dip in the ASX tech ETF's unit price.
