Digital Infrastructure Monthly Report | February

5G ETF Monthly Report: Key Takeaways

• We continue to see Covid-19 related omicron restrictions, inflation and supply chain issues putting some continued pressure on the overall global economy with growth stocks particularly hitting headwinds tied to the normalization of monetary policy and interest rates. [1]  Our view remains unchanged from the last update as we see these issues as a mid-term phenomenon that if anything, provide additional tailwinds for the strategy as companies continue to execute plans for 5G rollout, work from home, Web3.0 development and even the Metaverse. 

• The index declined 10.44% in January and from an attribution perspective was driven by Digital Transmission, Digital Solutions & IP and Digital Connectivity sectors once again as these sectors contributed to approximately 67% of period returns. [2]

• Digital Solutions & IP name VMware (VMW-US) posted a 10.87% return on increased price targets and improved recommendations from various sell side analysts after testing March 2020 lows at the end of December. [1]

• Digital Networks names Euronet WWD (EEFT-US) and Global Payments (GPN-US) saw January returns of 12.35% and 10.87%, respectively on strong earnings releases, [1] In the case of EEFT, joining the S&P MidCap 400 Index provided a boost while GPN’s announcement they will be targeting more mid-market centers like the Quapaw Tribe of Oklahoma owned Downstream Casino Resort to develop cashless services. [3]

• While announced on January 31, Digital Transmission name Citrix (CTXS) announced it is being acquired in an all cash deal for $16.5 billion (a 30% price premium at the time of the announcement) by private equity firm Vista Equity Partners. [4]

• As we shift from a pandemic to endemic situation with corona virus, we believe the acceleration continues in the shift of the global economy’s embrace of technology, especially in education, remote work, communication, shopping, transacting, and data processing.

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.   

Macro Outlook

The main driver of this strategy is the Virtuous Circle of capacity creating opportunity and opportunity, once seized, prompting the need for more capacity. As thematic investors, we break the economy into three components: consumers, corporations, and public policy. When we see consumers and corporations pulling in the same direction, we know we have a solid investing theme. When public policy joins them, setting performance thresholds or providing development incentives such as public works projects, all three are moving in the same direction, creating powerful thematic tailwinds, which is precisely what we see for digital infrastructure development.

Signals that the Virtuous Circle is alive and well include the US Federal Communication Commission announcing the launch of a $1.2 billion fund targeted at broadband development in approximately 1 million rural areas across the country; [5] internet service provider Comcast announcing testing of what it calls 10G modem technology, [6] developed by index constituent Broadcom (AVGO), which it claims will provide download and upload speeds above 4 gigabits per second (Gbps) for retail subscribers; index constituent Mediatek (2454-TW) announcing a successful demonstration of Wi-Fi 7 technology capable of speeds above 30Gbps as compared to current Wi-Fi 6 speeds of 9.6 Gbps. [7]

These and other announcements keep us optimistic that current supply chain woes and silicon shortages will be resolved in the coming quarters if only due to demand for hardware spurring further development. We remain excited about this spending bill in that more bandwidth and storage only serve to spur the economy to develop uses for that new capacity, reinforcing the virtuous circle. This focus on the development of a nation’s digital infrastructure as vital to its future competitiveness is evident in many countries around the world, and as we look forward to emerging technologies such as AR/VR and the metaverse, it will only become more critical. 

5G ETF Performance (As of 31.01.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/01/2022.

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data.

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