Link Administration Holdings Ltd (ASX: LNK) share price is currently trading more than 6% lower after the release of the company’s financial results for the period ended 30 June 2020 (FY20). 

FY20 results

Link Group had a challenging FY20 and delivered a statutory net loss after tax of $114 million, driven by a $108 million impairment of its corporate markets business in Europe. 

Revenue of $1.23 billion was down 3% on the prior corresponding period (pcp). Recurring revenue of $1.02 billion represents 83% of total revenue.

Operating earnings before interest, taxation, depreciation and amortisation (EBITDA) was down 26% to $294 million. 

The board has declared a 50% franked final dividend of 3.5 cents per share.

Link’s Property Exchange Australia (PEXA) is a national property settlement platform. It delivered 264 enhancements over the course of FY20 from member feedback. Additionally, 75% of all property transactions nationally are processed through the PEXA platform. As a result, revenue in this business increased 43% on the pcp and operating net profit after tax adjusted (NPATA) was $53 million, up from $5 million in the pcp.

Management comments

Link Managing director John McMurtrie said:

Against the backdrop of this challenging year, we have successfully delivered continuity of service for our clients, while also keeping our people safe during COVID-19. We continued our growth agenda and executed on a number of efficiencies and opportunities across the group.

He added:

Our transformation strategy of realigning into five global business units is now complete. Whilst the COVID-19 pandemic has delayed the benefit realisation expected, Link Group delivered $14.7 million of savings this year and plans to deliver $50 million of annualised savings by the end of FY2022.

Outlook

The group has decided because of the uncertain economic environment, financial guidance is not appropriate at this time, but is confident that it’s well placed to take advantage of new opportunities as they arise.

Link Administration has advanced on a number of initiatives that will deliver benefits in the near term, including its global transformation program and recapitalisation of PEXA. Its global transformation program is on track to deliver $50 million in annualised savings by the end of FY2022.

At time of writing, the Link Administration share price is trading at $4.10, a 6.82% drop on Wednesday’s close. 

More reading

• Link share price buoyed by appointment of new CEO

Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings Ltd. 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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The LiveTiles Ltd (ASX: LVT) share price is dropping lower on Thursday following the release of its FY 2020 results.

At the time of writing the intranet and workplace technology software provider’s shares are down over 4% to 22 cents.

How did LiveTiles perform in FY 2020?

For the 12 months ended 30 June 2020, LiveTiles reported a 98% increase in revenue to $44.5 million. This includes a 58% increase in other income to $6.7 million, related largely to government grants.

And while the company made good progress on restricting its operating expense growth to 11% during the year, its expenses still vastly outweigh its revenue at $76.2 million.

As a result, LiveTiles posted a statutory net loss after tax of $31.6 million and an underlying net loss after tax of $21.3 million.

But thanks to a $55 million equity raising in September, the company finished the period with cash on hand of $37.8 million.

“Significant step-change”.

LiveTiles’ Co-Founder and Chief Executive Officer, Karl Redenbach, was very pleased with the company’s performance.

He said: “We are very pleased with our FY20 results, including the significant step-change we made during the year to reduce our operating expenditures and improve our cash flow. This hard work following our September 2019 capital raising has supported us to maintain a healthy balance sheet position with cash on hand more than doubling when compared with last year.”

“Our Board has reiterated the Company’s near-term financial objective to reach operating cash flow breakeven during 2020, subject to operating conditions. Further, our confidence in the medium term outlook remains as strong as ever. Our team is hugely energised with the opportunity to help customers supporting their employees to communicate and collaborate in the new world of remote working,” he added.

Outlook.

In light of uncertainty created by the global pandemic, LiveTiles will not be providing guidance for FY 2021.

Though, it has advised that it will continue to focus on reducing its cash burn and is reviewing additional options including short-term revenue and cost initiatives to support this objective.

Outside this, its directors “continue to expect strong long-term growth potential for the Group, driven by increased remote working and demand for digital workplace software to support organisations.”

More reading

• 4 ASX shares to buy now for a post-coronavirus world
• Which 3 ASX tech shares are investing in long-term growth?
• LiveTiles share price sinks on Q4 update

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of LIVETILES FPO. The Motley Fool Australia has recommended LIVETILES FPO. 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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There are so many options in terms of where you choose to park your money in this day and age. In uncertain times like these, many people would say it’s safest to leave your savings in a bank account accumulating interest. But if you dig a little deeper, you’ll find that by doing so, you will actually be losing money rather than getting ahead.

How so? Well, let’s say you put $10,000 in Australia’s biggest bank, Commonwealth Bank of Australia (ASX: CBA). The interest that will be paid to you is around 1% per annum. Therefore, if you simply left your $10,000 in a savings account, each month you would be credited with $8.33 or $100 for the entire year.

One could argue yes, it is a paltry amount, but at least it’s safe. However, inflation rises every year by around 3%. So, what would cost you $10,000 today will cost you $10,300 the following year. In essence, you’ll be losing a net value of -$200 per year.

Enter, the share market. I’m sure every person dreams of a life that allows you to retire early and pursue your passions. It could be travel, studying and learning new skills, or even spending time with family and friends. Investing in the share market is one way to grow your nest egg to fund that early retirement.

So, if I had a spare $10,000, rather than leaving it in my savings, I would put it to work straight away in the share market.

There’s no doubt that choosing a company to invest in can be fraught with risks and short-term losses. However, investing is about long-term growth and not day-to-day market swings.

A lot of people may look at growth companies with a market capitalisation of $50 million–$500 million to quickly turn their portfolio from $10,000 to $100,000. However, these micro-cap and small-cap shares are considered extremely risky so I personally would not recommend them for a first-time investor.

Depending on your risk profile, I would consider investing in companies with a market capitalisation of somewhere between $500 million–$5 billion. In my view, these mid-cap companies provide the greatest opportunity for an investor to considerably increase their portfolio value with relative safety.

Well-run businesses with potential to grow materially in the future like Nearmap Ltd (ASX: NEA) and Electro Optic Systems Holdings Ltd (ASX: EOS) are 2 great examples. For the past 12 months, their share prices are both up 12% and 29%, respectively. A much better return than the 1% offered by Commonwealth Bank.

There are many more opportunities like these companies on the ASX. All that is required is some capital, some in-depth research and sound patience. Utilising those 3 attributes will help you reach the $100,000 mark much faster than simply having savings sitting in your account.

More reading

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Aaron Teboneras owns shares of Electro Optic Systems Holdings Limited and Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited and Nearmap Ltd. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited and Nearmap Ltd. 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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The share price of ASX junior biotechnology company Mesoblast Limited (ASX:MSB) is on the move after the company released its FY20 results to the market Thursday morning. At the time of writing, the Mesoblast share price had risen 3.69% to $5.34.

What’s moving the Mesoblast share price?

The Mesoblast share price has been boosted after the company reported a 92% increase in revenues to US$32.2 million, while its loss after tax decreased by 13% year on year to US$77.9 million. Despite posting a loss for the year, the company has a strong balance sheet, with US$129.3 million in cash on hand as at 30 June 2020. Most of this came courtesy of a successful US$90 million institutional capital raise in May.

However, most investors will be focused on the company’s FY20 operational highlights and how it is setting itself up to deliver in FY21. Mesoblast has a number of its stem cell treatments in final trial and approval phases, the most exciting of which is its flagship product, Ryoncil.

Ryoncil can be used to treat graft versus host disease (GvHD). GvHD is a potentially life-threatening complication which can occur in cancer patients who have received bone marrow transplants. In some of these cases, the donated ‘graft’ cells can attack the patient’s own body cells. 

Earlier this month, the Oncological Drugs Advisory Committee (ODAC), which advises the United States Food and Drug Administration (FDA), voted in favour of the efficacy and safety of Ryoncil for use in children under 12, sending the Mesoblast share price higher. There are currently no FDA-approved treatments for GvHD patients in this age group.

The license application for Ryoncil is now under priority review with the FDA, with the potential for it to be approved by 30 September 2020. Mesoblast is hopeful that it can launch Ryoncil in the US during the December quarter. The company sees this as a significant commercial opportunity.

Another exciting application that could drive the Mesoblast share price is its product’s possible treatment of COVID-19 induced acute respiratory distress syndrome (ARDS). A recent pilot study delivered promising results, and a phase 3 clinical trial involving up to 30 leading medical centres across the US could go ahead next quarter, pending a review of safety and efficacy data by the US Data Safety Monitoring Board.

Should you invest?

There are always significant risks involved with investing in a junior healthcare company like Mesoblast. There is still the real possibility Ryoncil won’t get the requisite approvals from the FDA, or that the ARDS phase 3 trials won’t go head. While early promising results make these outcomes unlikely, they are still possible.

And investors can see the potentially volatile effects of either of these outcomes on the Mesoblast share price. In early August, Mesoblast shares plummeted 37% to just $3.07 in the space of two days, before shooting back up again by almost 70%. These big swings occurred either side of the positive ODAC announcement and show just how heavily the company’s valuation rests on these approvals.

Mesoblast is an exciting company which is setting itself up to deliver a potential banner year in FY21. However, given its recent share price performance it might not all be smooth sailing. So, be prepared for some short-term bumps along the way if you do choose to invest in today’s Mesoblast share price.

More reading

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• Is this ASX biotech share the next CSL?
• Afterpay and Mesoblast were among the most traded shares on the ASX last week

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. 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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The Ramsay Health Care Limited (ASX: RHC) share price is pushing higher on Thursday following its full year results release.

At the time of writing the private hospital operator’s shares are up 1.5% to $66.45.

How did Ramsay perform in FY 2020?

It was a tough year for Ramsay because of the negative impact of the pandemic on elective surgeries and costs.

During the 12 months ended 30 June 2020, Ramsay posted a solid 7.3% increase in revenue up 7.3% to $12.4 billion.

However, this revenue increase didn’t flow through to its earnings. Ramsay recorded a 7% decline in earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) to $2 billion.

Things were even worse on the bottom line, with the company posting a 43% decline in core net profit after tax to $336.9 million. This was down 34.4% on a like for like basis.

In light of this sizeable profit decline and the tough operating environment, as previously announced, Ramsay has decided against paying a final dividend.

How did its segments perform?

Ramsay’s core Australia/Asia business reported a 2.2% decline in revenue to $5.1 billion and a 23.2% reduction in EBITDAR to $781.3 million.

Over in the UK, Ramsay recorded a 4.9% decline in revenue to 494.8 million pounds and a 10.6% fall in EBITDAR to 89.2 million pounds.

Things were better in Continental Europe due to its recent acquisitions. It recorded a 14.3% lift in revenue to 3.9 billion euros and an 8.5% increase in EBITDAR to 641.1 million euros.

A tale of two halves.

Ramsay Health Care’s Managing Director, Craig McNally, notes that the company was on track for growth until the end of February.

He commented: “At our interim results we reaffirmed our FY’20 guidance of core EPS growth on a like for like basis of 2% to 4%. However, the extraordinary circumstances posed by the COVID-19 pandemic on the Company’s operations around the world resulted in us withdrawing guidance in March 2020 and had a significant impact on the full year result.”

Mr McNally notes that elective surgery restrictions were imposed in most regions from March 2020 creating a significant level of uncertainty. Combined with increasing costs, this weighed heavily on its results.

Speaking about the costs, the managing director commented: “We are also experiencing additional costs associated with increased PPE usage, more costly PPE on a per unit basis, social distancing requirements, staff costs involved in screening patients, staff and visitors, and increased cleaning regimes.”

Outlook.

Given that many uncertainties remain with respect to the ongoing impact of the pandemic, Ramsay was unable to provide financial guidance for FY 2021.

Nevertheless, the company remains positive on its long term outlook.

Mr McNally commented: “Notwithstanding the significant near-term uncertainties, over the longer term, strong industry fundamentals remain. In addition to the increased demand for healthcare generally created by ageing populations with increased incidence of chronic disease, there are also now longer public waiting lists in each of our markets. We expect to play an enhanced role in relieving pressure on public waiting lists into the future.”

The managing director also revealed that the company continues to look at expanding its network at home and abroad.

“Following our recent $1.5 billion equity raising, Ramsay is also committed to expanding our business both in Australia and overseas, in and out of hospital where there is a strategic fit and it meets our strict investment criteria. We have a strong balance sheet to support this growth strategy,” he concluded.

More reading

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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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The Air New Zealand Limited (ASX: AIZ) share price is on watch this morning after the airline revealed its full year results. The coronavirus pandemic has wreaked havoc on airlines, and Air New Zealand is no exception. The result affirms the unprecedented impact the pandemic has made on the global aviation industry following the implementation of travel restrictions in March. 

What did Air New Zealand report? 

Air New Zealand reported a loss before tax and significant items of $87 million for FY20, its first loss in 18 years. This compares to earnings of $387 million in FY19. Despite reporting a strong interim profit of $198 million, COVID-19-related travel restrictions resulted in a 74% drop in passenger revenue from April to the end of June. This drove full year operating losses. Statutory losses before tax, which included $541 million of significant items, were $628 million. Non cash items reflected most of the significant items, including a $338 million aircraft impairment charge related to the grounding of the Boeing 777-200ER fleet for the foreseeable future. 

How has Air New Zealand responded to COVID-19? 

Air New Zealand has responded to the coronavirus crisis with a sense of urgency. The airline secured additional liquidity, structurally reduced its cost base, and deferred significant capex spend. The business pivoted quickly to ramp up domestic and cargo services to help keep the New Zealand economy moving.

Chair Dame Therese Walsh said: “Faced with such a swift decline in revenue as lockdown restrictions were implemented and borders were closed, we took immediate steps to secure $900 million in additional funding, and drastically reduced our cash burn in the knowledge that, for a time, we would be a much smaller business than we had been pre-COVID-19.”

Positioning for recovery 

Air New Zealand is preparing for an eventual recovery in demand via a strategy refresh focused on sustaining competitive strengths. The airline had short term liquidity of $1.1 billion as at 25 August. This was made up of cash and a $900 million loan facility from the New Zealand Government. Cash burn averaged $175 million per month from April to June due to higher refunds and redundancy payments. This reduced, however, to $85 million for July. 

The company is focused on preserving liquidity across a range of potential demand recovery scenarios. Given current financial pressures, no final dividend was declared for FY20. Due to uncertainty around travel restrictions and the level of demand in FY21, Air New Zealand is unable to provide specific earnings guidance. Nonetheless, it noted that each of the scenarios it is currently modelling suggest it will make a loss in 2021. 

The Air New Zealand share price was trading at $1.28 at close of trade yesterday.

More reading

• ASX shares that could take a hit from New Zealand lockdowns
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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. 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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The Appen Ltd (ASX: APX) share price was on form on Wednesday and hit a record high of $43.66.

Investors appear to have been fighting to get hold of the artificial intelligence company’s shares in anticipation of a strong half year update this morning.

Did Appen deliver?

For the six months ended 30 June 2020, Appen delivered a 25% increase in revenue to $306.2 million. This growth was driven entirely by its Relevance segment, which posted a 34% increase in revenue to $273.9 million. The company’s increasing irrelevant Speech & Image segment posted a 20% decline in revenue to $31.9 million.

Appen released three separate earnings before interest, tax, depreciation and amortisation (EBITDA) figures with its results.

Underlying EBITDA (including growth investments) was up 6% to $49.1 million, statutory EBITDA was up 44%, and underlying EBITDA excluding growth investments was up 35% to $62.5 million.

On the bottom line, Appen posted a 20% increase in statutory net profit after tax to $22.3 million and a 3% decline in underlying net profit after tax of $28.9 million.

An interim dividend of 4.5 cents per share, 50% franked, was declared. This is up 12.5% from the prior corresponding period.

What else did Appen reveal?

The company advised that 4 out of 5 major customers are now using the Appen annotation platform (formerly the Figure Eight platform).

In addition to this, an enterprise-wide platform agreement with a major customer has been signed. This includes a US$80 million annual commitment. This has underpinned a substantial increase in annual contract value (ACV) to US$103 million at the end of the half.

Appen’s Chief Executive Officer, Mark Brayan, commented: “Figure Eight is firmly part of Appen now. The almost fully integrated business is delivering on our strategic thesis. Four of our five major customers are now using our annotation platform and we signed an enterprise-wide platform agreement with one of them that included an US$80M annual commitment. This increased our total ACV at the end of the half to US$103M.”

Pleasingly, management is positive on the company’s prospects in the future, noting that it is “highly confident in the long-term market for AI and training data.”

The company’s chairman, Chris Vonwiller, commented on the result and believes its investment in growth will deliver results.

He said: “We are especially pleased with this result amidst the pandemic and the implementation of our growth initiatives. The strength of our business model, market exposure, competitive position and our consistent execution give us the confidence to push forward with our investments to solidify future growth.”

Outlook.

While the company notes that the global slowdown in online advertising spend because of the pandemic will have a small impact on its ad-related revenue in the second half, it has reaffirmed its guidance for FY 2020.

It expects its underlying EBITDA for FY 2020 to be in the range of $125 million to $130 million, based on an average exchange rate of 70 U.S. cents.

It also notes that its year to date revenue (plus orders in hand for delivery) stands at ~$475 million.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. 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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The Flight Centre Travel Group Ltd (ASX: FLT) share price could be on the move today following the release of the company’s FY20 results. The Flight Centre share price has been hit hard by the pandemic, falling more than 68% in year-to-date trading.

FY20 results

After navigating a challenging environment during FY20, the company has delivered an underlying loss before tax of $510 million before one-off items, including COVID-19 induced expenses of $339 million. On a statutory basis, Flight Centre delivered a loss of $849 million before tax. 

Investors will be watching the Flight Centre share price as the company revealed it has exceeded its short-term cash flow target. Flight Centre reported its annual cost base was lowered by approximately $1.9 billion to 31.5% of pre-COVID levels and revenue was above initial expectations by 31 July.

As of 29 February this year, it had achieved an underlying profit of $150 million and delivered a record total transaction value (TTV).

Flight Centre had a cash balance of $1.9 billion at 30 June including approximately $1.1 billion in liquidity (pre bank covenants).

The company’s global corporate business delivered an underlying profit before tax of $74 million during FY20. Additionally, it strengthened its diverse client base and organically increased market share. Accounts included flagship, enterprise level and government clients with annual pre-COVID spends of $1.8 billion. Furthermore, Flight Centre has secured an additional $390 million of new business already in FY21.

Despite the success of its global corporate business, Flight Centre’s global leisure business was the heaviest hit by the coronavirus pandemic. Profit was approximately $20 million to 29 February before losses were incurred. As a result, $200 million of revenue was reversed and minimal forward bookings were made since March.

Management comments

Flight Centre Managing Director, Graham Turner, commented “Travel is starting to gradually recover in locations like North America, Europe and South America, where domestic borders are now open, although we are seeing heightened restrictions in Australia and New Zealand, after earlier restrictions,”

“In the near term, TTV is likely to be domestic and corporate travel weighted, given that heavy restrictions still apply to international travel, although we are seeing some travel bubbles or corridors open as countries learn to live with the virus,” he added. 

Outlook

The company has seen an uplift in demand since April. However, the widespread and ongoing travel restrictions continue to prevent a meaningful, industry-wide recovery. As a result, Flight Centre is not in a position to provide market guidance.

Flight Centre believes international travel will not fully recover before FY23 or FY24 in the absence of a vaccine. Despite this, it expects gradual sales growth during the year as travel bubbles and corridors open between countries, which is happening now. The company is also optimistic that businesses and governments can work together to develop re-opening strategies, as is happening in some countries. 

Additionally, Flight Centre will continue to receive federal government subsidies through the JobKeeper program to retain employees. The Flight Centre share price closed yesterday’s session at $12.61.

More reading

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Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. 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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The City Chic Collective Ltd (ASX: CCX) share price is on watch this morning after the womenswear retailer released its full year results. City Chic reported strong growth in sales revenue despite store closures. Trading profitably through the coronavirus pandemic, City Chic grew its customer base by 72% in FY20 with online penetration reaching 65% of total sales. 

What does City Chic Collective do? 

City Chic is an omni-channel retail specialising in plus size women’s fashion, footwear, and accessories. The company has a network of 93 stores across Australia and New Zealand. It also sells via websites operating in ANZ and the US and via wholesale partnerships. City Chic acquired US business the Avenue late last year, which has driven growth in US and online sales. It is now looking to acquire the eCommerce assets of Catherines, a well-recognised US-based plus size retailer. 

How did City Chic perform in FY20? 

City Chic reported sales revenue of $194.5 million in FY20, an increase of 31% over the previous year. Following the acquisition of Avenue, online channels now represent two thirds of global business. US online websites contributed sales of $65.2 million in FY20 compared to $10.7 million in FY19, largely driven by the expanded customer base from the Avenue acquisition. Australian and New Zealand sales fell by 4.8%. Sales growth of 9.9% in the first half was offset by a 21.5% fall in the second half due to coronavirus and store closures. Trade has improved with the reopening of stores, with sales down 26% in June versus 47% in April. 

City Chic grew its global customer base 72% to 663k active customers in FY20. This contributed to global online website growth of 113.5%. But gross profit margin decreased to 48.1% from 57.8% in FY19 due to the shift in channel mix to online and higher levels of discounting. Underlying EBITDA increased 6.6% to $26.5 million but underlying EBITDA margin fell to 13.6% from 16.8% in FY19, impacted by a lower contribution from stores in the second half. This flowed through to statutory NPAT, which fell to $9.2 million from $14.3 million in FY19. In light of strategic priorities and uncertainty caused by COVID-19, City Chic has elected not to declare a final dividend. 

What’s next for City Chic? 

City Chic’s net cash position was $112.3 million at 24 August, reflecting the proceeds of its $110 million July capital raisIng. Funds will be used to pay for the acquisition of Catherines and provide flexibility to accelerate growth globally. The company says current market conditions are favourable to explore opportunities to expand the global customer base. City Chic believes it is well positioned to leverage its lean, customer-centric model to drive scale and grow its global footprint. 

The City Chic share price was tading a $3.30 at close of trade yesterday.

More reading

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. 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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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.

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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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