Digital Infrastructure Monthly Report | September

5G ETF Monthly Report: Key Takeaways

• August saw the index give back some of its June gains as the index declined -3.74% led by Digital Connectivity and Digital Processing Names contributing to over 75% of period returns.

• While all sectors ended the month declining, there were some individual bright spots, especially in Digital Solutions & IP names.

• 4 of the top 10 contributors to return included Sierra Wireless (SWIR-US) [23.71%], Inseego Corp (INSG-US0 [21.08%], Super Micro Computer (SMCI-US) [20.50%] and Wix.com (WIX-US) [6.67%].

• Digital Processing names took a breather this past month with Advanced Micro Devices (AMD-US) [-10.16%], Intel (INTC-US) [-12.09%] were the top detractors from performance this period.

• While the acceleration continues in the shift of the global economy’s embrace of technology, central banks’ response to global inflation is posing a potential headwind to markets in general but given the pull of the virtuous circle and recent infrastructure stimulus packages we feel that Digital Infrastructure will weather any central bank effects better than other segments within Technology.

Source of all data: Tematica Research. 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 and when you invest in ETFs your capital is at risk.

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 Industry analysts at Dell’Oro Group revising a January 2022 forecast for broadband equipment spending to $23.4 billion by 2026 from the earlier $17 billion estimate even in excess of inflation as they see fibre buildouts increasing.[1] To bolster that observation, there is an interesting story of a frustrated homeowner who decided to start his own ISP to service his and other rural neighbours’ homes who is in the process of expanding his network thanks to a $2.6 million grant from the US Federal government.[2] On the demand side multi-player first person shooter video game Counter-Strike: Global Offensive notched its second month in a row where their network hosted over 1 million concurrent players.[3] To be clear, this wasn’t a case of them hosting 1 million players during the month, but rather, hosting them all at the same time.

At the end of the month the U.S. Army approved an order for thousands of Microsoft Hololens goggles which is another bit of momentum in the virtuous circle. On the infrastructure side, the Federal Communications Commission (FCC) has finally been able to source detailed coverage maps from Internet Service Providers (ISPs) to create a true coverage map which will help them better manage information about internet availability across the country.[4] What will also help is that they will also be able to source feedback from customers to fine tune the map further. We talk about the regulatory environment as being a potential catalyst, and the effect of public policy can be seen in all of these points and can be a powerful catalyst in the development and deployment of new technology.

Prime Minister Narendra Modi announced India’s government is planning to launch 6G services by the end of this decade.[6] That announcement came at the grand finale of Smart India Hackathon 2022. Just days before 5G service in the country launched. “Adding 5G to existing 4G network architectures will enable a lot more feature- and function-rich user experiences across the entire business. From Financial Services to Retail to Manufacturing to Healthcare to Media and Entertainment, we are beginning to see 5G make an impact that has never been witnessed before,” per said Sunil David, co-chair, Digital Communications Working Group, IET Future Tech Panel. [6]

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. [7]

Digital Infrastructure and Connectivity UCITS ETF Performance Table

(As of 31.08.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2022.

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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