Aussie technology stocks surge: how to grab slice of the action
Technology companies such as Afterpay and Kogan bounced back from March’s COVID crash and have captured the imagination of investors. Here’s what you need to know before buying in.
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Shares in Australian technology companies are leaving other sectors in their dust after years in the shadows of US tech giants.
Investors who previously focused on the so-called FANG stocks – Facebook, Amazon/Apple, Netflix and Google – now have something local to love, and analysts say a tech company will soon sit among Australia’s top 20 stocks.
BetaShares CEO Alex Vynokur said Australia’s economy was historically powered by the financial and resources sector but “the reality is the future is very much about technology and innovation”.
“Firms like Afterpay are a good example of a business that’s changing the status quo,” he said.
“Seek, REA Group and Carsales are really exciting and truly innovative businesses trading on the ASX.”
Technology stocks slumped more than 40 per cent during the March COVID crash but recovered all those losses and more.
And it’s not just short-term growth. Mr Vynokur said the stocks had average annual returns of 15.7 per cent over five years, compared with 4.3 per cent for the broader market.
“We feel a lot of growth is still to come but the short-term direction of the market is difficult to predict,” he said.
Many tech companies are not household names, and Mr Vynokur suggested diversifying through BetaShares’ exchange traded fund ATEC, which tracked a new ASX index covering 50 technology stocks.
Bell Direct market analyst Jessica Amir said the tech sector was “head and shoulders” above the broader market and Afterpay was now our 22nd biggest company.
“While the US has FANG, Australia has WAAX: WiseTech, Appen, Altium, and Xero,” she said.
Ms Amir suggested the ATEC fund for investors who didn’t have time to pick stocks themselves.
“You can buy and sell it like a share, and you’ll get the yearly dividend, plus the investment is essentially managed for you,” she said.
Ms Amir said people wanting to invest in individual tech stocks should think about brands they interacted with such as Kogan or Zip.
“Then do your research and use your broker to find out if the company has been growing its cashflows, revenue and earnings – with that trifecta often comes share price growth,” she said.
Ausbil portfolio manager Mason Willoughby-Thomas said technology represented about 10 per cent of Australia’s sharemarket.
“In recent years Australia has produced a growing number of technology-focused firms with global leadership positions,” he said.
This included Afterpay in payments technology, Appen in artificial intelligence applications and WiseTech in logistics management.
TOP TECH
(Share price rise in the past year)
Kogan 195%
Afterpay 133%
Zip Co 75%
Xero 47%
Carsales.com 25%
Appen 17%
REA Group 6%
Originally published as Aussie technology stocks surge: how to grab slice of the action