Digital Infrastructure Monthly Report | April

21 April 2022

5G ETF Monthly Report: Key Takeaways

  • In addition to the ongoing war in Ukraine, we continue to see inflation and supply chain issues putting 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. 
  • The index declined 1.31% in March and from an attribution perspective was driven by Digital Processing, and Digital Transmission sectors as these sectors contributed to approximately 106% of period returns. [2]
  • Despite the Digital Transmission sector weighing on overall returns, Transmission constituents held 5 of the top 10 contributor positions with names like Arista Networks (ANET-US) [13.24%], SBA Communications (SBAC-US) [13.42%] and American Tower (AMT-US) [10.73%] all up on the mid-month passing of the $1.5 trillion US Federal Government spending bill. 
  • Digital Processor Intel (INTL-US) saw March returns of 3.90% on news of a collaboration with Nvidia (NDA-US) on chip design and manufacture.
  • Data Center provider VNET Group (VNET) declined 25.92% after missing earnings by $0.02 as operating expenses more than doubled from Q3 2021.
  • As we continue to shift from a pandemic to endemic situation regarding corona virus 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.

Source of all data: Bloomberg/ Tematica Research. Please note that all performance figures are showing net data. Past performance is no guarantee of future performance. 

 

 

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 Alphabet (GOOGL) subsidiary Google landing its first undersea high-speed cable in the country of Togo. The Equiano cable project [3] began in 2019 and represents a 20x leap in broadband availability to the country as and Western Africa in general. Another sign the virtuous circle is alive and well is a new study from research firm Dell ‘Oro noting that 400Gps ports in data centers are rising in popularity and are beginning to make inroads against 100Gps ports as the new standard. [4] Pushing bandwidth boundaries is Apple’s (AAPL) SharePlay which allows multiple users to simultaneously view and interact with each other while consuming media. The platform was recently introduced to subscribers of ESPN+, owned by media giant Disney (DIS) and represents yet another demand on current infrastructure. 

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 31.03.2022)

 

1M

3M

6M

YTD

12M

SI

Digital Infrastructure and Connectivity UCITS ETF (DIGI)

-1.35%

-14.79%

-6.84%

-14.79%

-4.36%

15.32%

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI)

-1.60%

-14.68%

-6.55%

-14.68%

-3.80%

16.59%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/03/2022.

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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