Inflation is on the rise, and that means interest rates are too. So where can investors turn to protect their portfolios from the sting of inflation? ASX-listed exchange-traded funds (ETFs) might be one place the average investor hasn't thought to look yet.
At the latest ASX Investor Day, two Betashares ETFs were touted as potential inflation fighters. The first is the Betashares Cloud Computing ETF (ASX: CLDD), which invests in a diversified mix of global companies in the cloud computing industry. The second is the Betashares Global Cybersecurity ETF (ASX: HACK), which invests in 41 leading companies fighting cybercrime.
Let's take a closer look at these ASX ETFs and why they could be less prone to rising prices.
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Paying up for what is essential
Pricing power is a key factor when it comes to avoiding the margin crimping effects of inflation on a company. Essentially, all products are competing with each other for each dollar in a consumer's wallet.
When prices rise broadly, that competition becomes more fierce as the average person becomes more selective with where they spend their money. However, the more of a necessity a product or service is, the greater the ability to increase prices while retaining customers.
As noted at the ASX Investor Day, both cloud computing and cybersecurity are sectors that are becoming more of a necessity than a discretionary purchase. In the case of cybersecurity, this is a byproduct of the costliness of not having protection in the current era.
According to the presentation, the global cost of ransomware attacks increased an astonishing 5,700% between 2015 to 2021. Similarly, data is growing at a blistering rate of 60% per annum.
Furthermore, the presenter highlighted high margins, recurring revenues, and sticky relationships as attractive features of companies within the cloud computing ASX ETF.
What companies are in these ASX ETFs?
It is always good to remember that ETFs are a collection of companies. So, before investing it's good to get a grasp of where exactly our dollars are being allocated.
For the Betashares Cloud Computing ETF, the top 10 positions are as follows:
- Anaplan Inc (NYSE: PLAN)
- Akamai Technologies Inc (NASDAQ: AKAM)
- Mimecast Ltd (NASDAQ: MIME)
- Qualys Inc (NASDAQ: QLYS)
- Box Inc (NYSE: BOX)
- Digital Realty Trust Inc (NYSE: DLR)
- Dropbox Inc (NASDAQ: DBX)
- SPS Commerce Inc (NASDAQ: SPSC)
- Five9 Inc (NASDAQ: FIVN)
- Workday Inc (NASDAQ: WDAY)
Meanwhile, the top 10 companies making up the Betashares Global Cybersecurity ETF are:
- Cisco Systems Inc (NASDAQ: CSCO)
- Palo Alto Networks Inc (NASDAQ: PANW)
- Crowdstrike Holdings Inc (NASDAQ: CRWD)
- Zscaler Inc (NASDAQ: ZS)
- Mandiant Inc (LON: 0QZY)
- Leidos Holdings Inc (NYSE: LDOS)
- Booz Allen Hamilton Holding Co (NYSE: BAH)
- Cloudflare Inc (NYSE: NET)
- Sailpoint Technologies Holding (NYSE: SAIL)
- Akamai Technologies Inc
Considering most of these companies fall under the 'tech' stock category, it comes as no surprise that neither of these ASX-listed ETFs has fared too well so far this year. At the time of writing, HACK is down 16.2% year-to-date, while CLDD is down 30.1%.
