Buying shares in the booming technology sector has produced stellar returns this year in US markets and elsewhere around the globe as technology investment in software and hardware and spending on IT services booms.

While the Australian technology sector is relatively small, the good news for investors is that managed or exchange-traded funds (ETFs) enable them to get diversified exposure to technology shares listed offshore.

The technology heavy NASDAQ is up 28.3 per cent over the year to 13 December. That compares to 20.4 per cent for the S&P 500.

Elsewhere, technology securities make up almost half the stock markets of Korea and China, and 63 per cent of the Taiwanese market. So, managed funds and ETFs focused on these regions may also offer broad exposure to technology shares.

Michael Malseed, senior analyst, manager research with Morningstar, says there are a number of ETFs and managed funds available in Australia that have a fair degree of US technology exposure. He stresses the importance of diversification to protect against market shocks.

"While technology stocks have performed well in 2017, investors should always consider diversification to offset the volatility of individual stock and sector returns," says Malseed.

Malseed names BetaShares NASDAQ 100 ETF (ASX: NDQ), ETFS Morningstar Global Technology ETF (ASX: TECH), and iShares Global 100 ETF (AU) (ASX: IOO).

For actively managed funds, a relatively high exposure to US technology is offered by Morningstar gold-rated Magellan Global Equities (ASX: MGE), which as at 31 October 2017 had around 33 per cent exposure to technology, internet, and e-commerce stocks, including Apple, eBay, Facebook, Alphabet (Google owner), and Microsoft.

Over the year to 30 November 2017, the fund had returned 20.4 per cent, in line with its benchmark, the MSCI World Ex Australia NR AUD.

The BetaShares NASDAQ 100 ETF (not rated by Morningstar) has an even greater exposure, or around 61 per cent, to US technology shares. That ETF has returned 29.3 per cent over one year to 30 November 2017, riding the technology boom.

The bronze-rated VanEck Vectors MSCI World ex Australia Quality ETF (ASX: QUAL) has around a 33 per cent exposure to US technology stocks, including Apple, Microsoft, and Alphabet. The ETF has returned 23.5 per cent over the past year.

The Platinum International Technology fund [6644] (not rated by Morningstar) has around a 40 per cent exposure to US stocks, with a large investment in the Asian region. The fund's portfolio typically consists of 40 to 100 securities that Platinum believes to be undervalued by the market, from the big tech names in Silicon Valley to China's e-commerce platforms to Korea's consumer electronics producers.

Platinum International Technology has returned 26.2 per cent over one year to 30 November 2017, compared to a return of 39.2 per cent for the MSCI AC World IT Net AUD Index, but just 9.6 per cent over 10 years, highlighting the point that technology shares too can experience challenging times.

But again, caution is warranted, say portfolio managers Alex Barbi and Cameron Robertson in a recent fund update.

"With the Nasdaq 100 Index up more than fivefold since bottoming in early 2009, the current bull market has now entered its ninth year. While current valuations are nowhere near the crazy levels reached during the dotcom bubble in 2000, they have no doubt been inflated by the artificially low interest rates that have prevailed since the GF," they write.

"As the US Federal Reserve starts to reverse its long-standing loose monetary policy, one may expect to see some headwinds for those companies with leveraged balance sheets and/or stretched valuations.

"Our efforts are concentrated in avoiding them while searching for the always present
overlooked."

In the emerging Asian markets of China, Korea, and Taiwan, "there are several funds with medallist analyst ratings that have a meaningful exposure to faster growing IT companies in those nominated countries," says Morningstar associate director, manager research, Tim Wong.

In China, the IT sector accounts for 42 per cent of the stock market, while in Taiwan it is a whopping 62.5 per cent and in Korea it is 45.9 per cent, as measured by the respective MSCI country indices.

"Among active funds, this includes the likes of T Rowe Price Asia ex-Japan [17615], BT Wholesale Asian Share [4246], and Platinum Asia (ASX: PAXX). Among passive strategies, the iShares Asia 50 ETF (ASX: IAA) and the Vanguard Emerging Markets Shares Index [4743] also have sizeable exposures," says Wong.

If you're planning to invest in funds focused on offshore assets, then you may need to think about hedging your currency exposure. Any drop in the Australian dollar helps investors as it magnifies gains when assets are converted into local dollars.

However, any rise in the Australian dollar diminishes returns when assets are converted into the local currency.

Magellan Global Equities offers a hedged and unhedged version of the fund, leaving the decision whether to hedge to investors. In contrast, Platinum actively manages currency within the fund, rather than providing a specific hedged share class, leaving hedging decisions to the fund manager.

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Nicki Bourlioufas is a Morningstar contributor and owns shares in Magellan Global Equities Fund and Magellan Financial Group. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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