Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 351

Why technology stocks are good for the future

Technology companies have been hit with volatility as investors react to the COVID-19 pandemic. Apple has responded to lockdowns in some of its Chinese manufacturing hubs by announcing it will temporarily close stores. On the other hand, tech companies like video-conferencer Zoom have benefited as more people work from home. While short-term performance will remain volatile, over the longer term the IT sector is likely to continue to drive the global economy.

Technology is the engine that powers business and enables the instant communications and connectivity we take for granted. It also has enormous potential to transform how we use resources across other business sectors – with significant benefits to the environment and society.

We believe technology will play a key role in the transition to the renewable-powered economy of the future, and that’s part of the reason our portfolios have an overweight position in the IT sector.

Embracing the cloud

In recent years, there’s been a strong trend away from storing data on in-house servers. Instead, more companies are outsourcing data storage to the cloud which is managed in large data centres, creating a significantly more efficient option than on-premise servers.

The energy used by these data centres is nonetheless substantial and a challenge in its own right. However, some major data centres, including those owned by Apple and Google, are now 100% powered by renewable energy. Meanwhile, Nordic centre DigiPlex has pledged to use waste heat from one of its data centres to warm up to 5,000 apartments in Oslo.

Companies like Microsoft are taking impressive measures to limit their carbon footprints. Rather than just aiming to be carbon neutral, Microsoft is on a pathway to become carbon negative by 2030. The company says that by 2050, it will have removed from the environment “all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975”.

Saving energy, saving trees

One of the best-known advantages of technology and digital solutions is that they can reduce a company’s reliance on paper. Logging trees to make paper is one of the key causes of deforestation, which impacts on biodiversity and contributes to climate change.

Using digital solutions, like viewing documents online and sending email instead of letters, can help save trees – and therefore our forests, with a flow on effect to our climate. To illustrate, an Argentinian study concluded that producing a four-page direct mail letter and envelope accounts for 25 grams of carbon, even before it is sent. Compare this with email, which is estimated to generate just 4 grams.

Three highlighted technology stocks

At its launch, our new Australian Shares SMA strategy held 5.2% of its portfolio in the IT sector (compared with the benchmark S&P/ASX200 sector weighting to IT of 3.1%). This was represented by one stock, Link Group. An additional 6.8% of the SMA portfolio was represented by Domain Holdings and Seek Ltd, two businesses we categorise as Technology due to their digitally focused businesses but officially sit in the Communications Services and Industrials sectors, respectively.

In line with the broader Australian stock market, these companies’ share prices have been hit hard in recent weeks. However, we believe they remain good long-term investments that provide a positive benefit to society.

Link Group

Link Group provides administration services and digital tools for financial market participants. Their clients are varied and include listed companies (to help manage and communicate with their shareholders), industry funds (to help with membership administration) and lenders (to assist with loan administration).

Under the Australian Ethical Charter, Link Group receives a positive assessment for its technology and administration services because they create more efficient solutions for financial services businesses and their customers.

We also think Link Group is an attractive investment because it is a global business that generates long-term stable cashflows. We also think that the PEXA asset, an online conveyancing platform, is an attractive investment by the company as Australia transitions towards a 100% digital conveyancing process.

Domain

Domain provides residential and commercial property marketing services through its online listings portal. The company’s digital advertising platform is positive under our Charter as an efficient medium of advertising compared to print advertising. Because it also helps people secure housing, Domain attracts a positive adjustment under our Charter.

From an investment point of view, Domain is firmly established as the number two in digital property advertising in Australia behind REA Group. There are structural tailwinds supporting these businesses as property listings continue to flow out of print and into online platforms. We believe Domain has a strong management team backed by Nine’s ownership of the company, healthy cashflows and the potential for higher earnings growth.

Investing for good

We believe investments need to do more than deliver strong financial returns – they also need to generate a positive impact. Used well, technology can help improve efficiency, reduce waste and improve peoples’ lives.

 

Mark Williams is the portfolio manager of Australian Ethical’s Australian Shares SMA strategy. Australian Ethical is a sponsor of Firstlinks. This article is general information and does not consider the circumstances of any investor. While this information is considered to be true and correct at the date of publication, be aware that portfolio changes do occur over time.

For more articles and papers from Australian Ethical, please click here.

 


 

Leave a Comment:

RELATED ARTICLES

Lessons for our Year 12 economics students and investors

Beyond the acronym, navigating important ESG choices

How megatrends are reshaping investment management

banner

Most viewed in recent weeks

Australian stocks will crush housing over the next decade, one year on

Last year, I wrote an article suggesting returns from ASX stocks would trample those from housing over the next decade. One year later, this is an update on how that forecast is going and what's changed since.

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

9 lessons from 2024

Key lessons include expensive stocks can always get more expensive, Bitcoin is our tulip mania, follow the smart money, the young are coming with pitchforks on housing, and the importance of staying invested.

The 20 most popular articles of 2024

Check out the most-read Firstlinks articles from 2024. From '16 ASX stocks to buy and hold forever', to 'The best strategy to build income for life', and 'Where baby boomer wealth will end up', there's something for all.

2025: Another bullish year ahead for equities?

2024 was a banner year for equities, with a run-up in US tech stocks broadening into a global market rally, and the big question now is whether the good times can continue? History suggests optimism is warranted.

Latest Updates

Shares

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

Property

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

Superannuation

How to fix the Commonwealth Superannuation Scheme

The scheme has not been updated since it was established and is no longer fit for purpose. Members now find themselves disadvantaged in several important ways versus those in other superannuation funds.

Investment strategies

5 key investment themes for the next decade

AI has helped markets to new highs and rightly dominated news headlines. Yet there are other themes, including niche ones such as gene editing, which are also expected to drive investment returns over the next decade.

Shares

New avenues of growth make 2025 exciting for investors

Investors need to be more discerning this year as headline valuations are high and the economic cycle turns. Dig a little deeper, though, and there are big opportunities in overlooked shares with strong tailwinds.

Investment strategies

The pros and cons of debt recycling strategies

Debt recycling is a powerful strategy for those juggling the seemingly competing goals of debt reduction and building an investment portfolio. Yet it's often misunderstood because it isn't just a single strategy.

Investment strategies

Australia is out of step on nuclear power

Globally, nuclear power is gathering momentum as a differentiated power source in the energy transition to zero carbon emissions. Yet in Australia, a nuclear ban remains, making us an outlier among our Western Allies.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.