Digital Infrastructure Monthly Report | May

5G ETF Monthly Report: Key Takeaways

• We have seen the current earnings season deliver some pleasant surprise as over 80% of companies have had upside surprises in their earnings releases. This, coupled with non-index components like Microsoft (MSFT), Alphabet (GOOG) and Meta (FB) announcing increased spending on what is effective data center technology, re-enforces the Virtuous Circle of development begetting growth spurring development, ad nauseum. [1]

• The index declined 11.10% in April and from an attribution perspective was driven by Digital Transmission and Data Networks sectors as these sectors contributed to approximately 50% of period returns.

• Despite the Digital Transmission sector weighing on overall returns, Transmission constituents held 2 of the 8 positive returning positions with SBA Communications (SBAC-US) [0.87%], and Crown Castle International (CCI-US) [0.33%].

• Data Center names Digital Realty Trust (DLR-US) [3.05%] and VNET Group (VNET-US) [2.40%] also provided some strength against the overall decline this month.

• Finally, Digital Solutions & IP names Silicon Motions Tech Corp (SIMO-US) [13.63%], Super Micro Computer (SMCI-US) [10.59%] and Casa Systems (CASA-US) [8.41%] led the way occupying the top 3 slots in April.

• As we continue to shift from a pandemic to endemic situation regarding COVID-19, 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. [2]

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 the increasing number of articles contemplating the emergence of 6G technology even as many are still grappling with the rollout of 5G.[3]  Another sign the virtuous circle is alive and well is are forecasts calling for a 13.47% compound annual growth of the global data center market, from $59.7 billion in 2021 to $163.2 billion in 2030.[4]  The Asia Pacific region, specifically India is forecast to have the fastest growth rate of 16.8% over this period.[5]  The only near-term headwind we see currently is the knock on effect China’s Zero Covid policy is having on both the demand and supply side of technology overall. Still, the projects envisioned in data center and other segment forecasts are very large and long-term projects that might get delayed with short-term issues but will get completed as soon as practicable.

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.

Digital Infrastructure and Connectivity UCITS ETF Performance Table

(As of 30.04.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/04/2022.

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.

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