Why this ASX tech ETF can ride the market gains higher

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.

More reading

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• 5 things to watch on the ASX 200 on Thursday
• ASX 200 drops 0.7%, Zip rises 27.5%
• What’s sent WiseTech’s share price up 36% so far in August
• ASX 200 down 1.25%: Big four banks tumble, Cleanaway impresses, Whitehaven disappoints

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.

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