How to Position Tech ETFs in a Portfolio
Over the past two decades, technology stocks have garnered significant attention due to their innovation and outperformance. Big tech giants, such as Apple, Amazon, or Microsoft, have grown to dominate even broad-based indexes, and investing in technology now seems commonplace for modern investors. But with technology being such a multifaceted sector, some may find themselves wondering – where and how should you be integrating tech into your portfolio?
One effective approach is to implement technology ETFs into a core and satellite (C&S) model. This investment strategy involves dividing your investment portfolio into two distinct components: the “core” and its “satellites”. Below, we look at each component and how different tech ETFs may fit the bill.
Positioning Tech ETFs in the Core
Core portfolio holdings are the heart of the C&S model and should consist of investments in which you have the strongest conviction and longest investment timeframes. A well-balanced core can consist of multiple investments – such as ETFs in key asset classes like equities and bonds, or alternatives such as commodities and real estate. By diversifying across asset classes, one can better manage single asset and sector risk, as well as lower volatility.
For a tech-heavy holding, ETFs that track large-cap US companies, such as the Global X US 100 ETF (ASX: N100), may offer a growth tilt to your core. N100 does this by providing investors efficient access to 100 of the top technology and innovation-driven companies on the US market. The fund provides a well-diversified exposure to industries such as consumer goods, healthcare, and food services, as well as a strong tilt toward blue-chip technology mega caps such as Apple, Alphabet (Google’s parent company), Tesla and Meta. Read the N100 Investment Case to explore the growth potential of the US’s most influential innovators while maintaining a balanced portfolio core.
Incorporating Tech ETFs as Satellites
Depending on your risk profile and personal convictions, incorporating technology as a satellite may better help achieve your investment goals. Satellites generally represent a smaller portion of your portfolio when compared to the core. Investors can use this allocation to express conviction in stocks, industries, or trends which they believe could provide outsized returns, albeit with higher concentration risk. Satellite investments also tend to vary in investment timeframes and can be tactically adjusted to maximise growth potential.
For investors looking to gain exposure to technology stocks and limit single asset risk, technology and thematic ETFs can be great options for satellite positions. Examples include Global X Semiconductor ETF (ASX: SEMI) and Global X ROBO Global Robotics & Automation ETF (ASX: ROBO), two funds with distinct and targeted exposure to tech-oriented growth opportunities. SEMI is a thematic technology fund that seeks to invest in companies that benefit from the proliferation of semiconductors and advanced microchips in present and future technology, while ROBO focuses on the advancement of automation, artificial intelligence, and robotic solutions in the supply chain. An investor interested in the development of AI, for example, could potentially hold both ETFs as satellites to supplement their core portfolio.
Core, Satellite or Somewhere In Between?
Not all ETFs can be cleanly categorised as a core or satellite holding. In fact, there may be quite a large number of investments that can fit in both categories depending on personal risk profile and investment goals. A multi-theme ETF such as the Global X FANG+ ETF (ASX: FANG), which invests in 10 mega-cap innovation stocks on the US market, may be appropriate as a core holding for a more risk-inclined investor – trading broad-based diversification for more concentrated growth potential. While a risk-averse investor may find FANG better placed as a satellite exposure, providing a large-cap technology tilt to their well-balanced core. The core/satellite model can help investors construct a flexible yet balanced approach to risk and return, however, the most important differentiators should be your own risk profile and investment thesis.
Interested in knowing what ETFs are out there to help you construct your tech portfolio? Global X is a leading provider of thematic and technology ETFs in Australia. Explore our diverse range of technology ETFs here.
N100: The Global X US 100 ETF (ASX: N100) invests in the top 100 companies listed on the Nasdaq exchange, excluding financials and REITs. N100 seeks to provide investment results that correspond generally to the price and yield, before fees and expenses, of the Global X US 100 Index.
FANG: For investors who seek to access companies at the leading edge of next-generation technology, including both household names and newcomers, the Global X FANG+ ETF (ASX: FANG) offers a solution.
ROBO: For investors who seek to access companies that potentially stand to benefit from increased adoption and utilisation of robotics and artificial intelligence, The Global X ROBO Global Robotics & Automation ETF (ASX: ROBO) offers a solution.
SEMI: For investors who seek to access companies that stand to potentially benefit from the broader adoption of tech-enabled devices that require semiconductors, the Global X Semiconductor ETF (ASX: SEMI) offers a solution.
Editor’s Note: This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial advice before investing.