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Why the new BetaShares Aussie tech ETF (ASX:ATEC)?

Posted: 26 February 2020 6:03 pm
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ATEC will be the first ETF to track Australian technology stocks, but is it a good investment?

Can't decide whether to buy shares in Afterpay, Wisetech or another Aussie rising star? This new ETF might be right up your alley.

In what is a coming-of-age sign for our tech sector, ETF provider Betashares has announced that it's launching the S&P/ASX Australian Technology ETF (ASX:ATEC) to be listed in March.

Although there are several technology-focused ETFs listed on the ASX, they largely hold a mix of major US or Asian companies such as Google, Facebook or Alibaba.

Also read: What are ETFs and how do you invest in them?

ATEC will be the first ETF to solely track Australian listed tech companies, including the WAAAX stocks (Wisetech, Afterpay, Appen, Altium, Xero), Australia's answer to the FAANGs (Facebook, Apple, Amazon, Netflix, Google).

WAAAX returns in 2019 (1 January – 31 December)

  • Wisetech (WTC): 37%
  • Appen (APX): 73%
  • Afterpay (APT): 155%
  • Altium (ALU): 58%
  • Xero (XRO): 90%

The ETF aims to track the S&P/ASX All Technology Index (XTX), an index of around 50 top Australian tech stocks that launched this week.

Only companies with a market capitalisation of at least $120 million are eligible and they must also meet minimum liquidity requirements.

While an ASX Information Technology sector index already existed (XIJ), the All Technology Index also includes tech companies outside of the IT industry, including consumer electronics, health care, internet marketing and media.

The list of companies held by the ETF will be released once it's launched, but we know that the following companies are currently included in the index (subject to change on a quarterly basis):

Full list of companies in the S&P/ASX All Technology Index

COMPANYTICKERSECTOR (GICS)
Xero Limited NpvXROSoftware & Services
Computershare LtdCPUSoftware & Services
Afterpay LtdAPTSoftware & Services
REA Group LtdREAMedia & Entertainment
Carsales.com LtdCARMedia & Entertainment
Altium LimitedALUSoftware & Services
Link Administration Holdings LimitedLNKSoftware & Services
NEXTDC LtdNXTSoftware & Services
Wisetech Global LimitedWTCSoftware & Services
Appen LimitedAPXSoftware & Services
Technology One LtdTNESoftware & Services
Iress LimitedIRESoftware & Services
Webjet LtdWEBRetailing
Megaport LimitedMP1Software & Services
EML Payments LimitedEMLSoftware & Services
Bravura Solutions LimitedBVSSoftware & Services
Codan LimitedCDATechnology Hardware & Equipment
Pro Medicus LimitedPMEHealth Care Equipment & Services
Domain Holdings Australia LtdDHGMedia & Entertainment
Nearmap LtdNEASoftware & Services
Data#3 LimitedDTLSoftware & Services
Infomedia LtdIFMSoftware & Services
Hansen Tech Ltd.HSNSoftware & Services
FINEOS Corporation Holdings PlcFCLSoftware & Services
Audinate Group LtdAD8Technology Hardware & Equipment
Integrated Research LtdIRISoftware & Services
Kogan.Com LtdKGNRetailing
ELMO Software LtdELOSoftware & Services
Volpara Health Technologies LtdVHTHealth Care Equipment & Services
Bigtincan Holdings LtdBTHSoftware & Services
Rhipe LtdRHPSoftware & Services
Redbubble LimitedRBLRetailing
Catapult Group International LtdCATTechnology Hardware & Equipment
Dubber Corp LtdDUBSoftware & Services
The Citadel Group LimitedCGLSoftware & Services
Life360 Inc360Software & Services
Class LimitedCL1Software & Services
Praemium LimitedPPSSoftware & Services
Livetiles LtdLVTSoftware & Services
Pushpay Holdings LtdPPHSoftware & Services
Atomos LtdAMSConsumer Durables & Apparel
ResApp Health LtdRAPHealth Care Equipment & Services
Painchek LtdPCKHealth Care Equipment & Services
Alcidion Group LtdALCHealth Care Equipment & Services
Over The Wire Holdings LtdOTWSoftware & Services
NetLinkz LimitedNETSoftware & Services

Source: S&P Dow Jones, 25 February 2020.

What can we expect from ATEC?

It's impossible to predict how the new ETF will perform, however, we can look at how the companies in the index have performed over time.

Remember, past performance is no guarantor of future success.

The chart below shows a comparison between the S&P/ASX All Technology Index (light blue) compared to the performance of the S&P/ASX 200 index over five years.

Chart comparing ASX200 with ASX All-Tech indices.

Source: S&P Dow Jones, 25 February 2020. Light blue line shows the All Technology Index, dark blue line shows the ASX200 index.

In the last five years, the All Technology Index has returned 16.4% annually, while the benchmark ASX200 index (Australia's 200 biggest companies) has returned 7.5% p.a. during that same time.

We can also compare the All Technology index to how other ETFs have performed in the last year.

In 2019, an ETF tracking the All Technology Index would have seen returns of around 20%, on track with the average returns of ETFs listed on the ASX.

Of course, that's not including management fees. Betashares is charging 0.5% (MER) per annum. That's not super cheap, but it's on parr with average ETF fees (0.49% in 2019), the lowest being 0.03 and the highest well over 1%.

Should you invest?

The index is the closest Australia has to the NASDAQ in the United States, according to managing director of Medallion Financial Group Michael Wayne. But does that mean it will be as successful?

"The ASX All-tech index is an interesting addition to the market," Wayne told Finder.

"As with all indices and ETFs there will be some good quality businesses mixed in with some poorer quality companies. With the strong performance of the broader technology space in recent years, many Technology companies have performed extremely well but have become very expensive, relative to traditional valuation measures."

As a comparison, Wayne pointed to the S&P/ASX 200 Information Technology Index, which was trading on a price-to-earnings (P/E) ratio of 15X. Today that index trades on a P/E of 40x.

"Investors looking to invest in the new broad-based Betashares' tech ETF tracking the ASX All-Tech index need to ask themselves, am I too late to the party?" Wayne cautioned.

Regardless of whether you think it's the right ETF for you, it marks an exciting turn for Aussie tech, and one worth keeping an eye on.

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