Digital Infrastructure Monthly Report | October

5G ETF Monthly Report: Key Takeaways

• September saw the index extend its August trend as the index declined -13.18% led by Digital Transmission and Digital Processing Names contributing to just over 55% of period returns.

• While all sectors ended the month declining, there were some individual bright spots in Digital Solutions & IP, Data Networking, Data Centers and Digital Transmission.

• The top 4 of the top 10 contributors to return included Wix.com (WIX-US) [23.61%], Calix Networks (CALX-US) [3.89%], VNET Group (VNET-US) [2.80%] and Citrix Systems (CTXS-US) [1.10%].

• Digital Processing names continued to decline, and once again were the top detractors from performance this period with Advanced Micro Devices (AMD-US) [-25.34%], Intel (INTC-US) [-19.27%], and Mediatek (2454-TW) [-20.80%].

• 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 / Bloomberg. Data as of 30.09.2022. Please note that all performance figures are showing net data. Past performance is not indicative of future performance 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.

While short-term outlooks for technology in general seem dim, signals that the Virtuous Circle is alive and well include the announcement of Intel (INTC-US) and Broadcom (AVGO-US) that they had successfully demonstrated a Wi-Fi 7 connection at speeds of 5 gigabits per second (Gbps).[1] This compares to the 1 Gbps maximum currently offered by Wi-Fi 6. Intel expects Wi-Fi 7 based products to start launching in 2024. On the regulatory front, U.S. Internet Service Provider (ISP) Frontier entered into a settlement agreement[2] with the state of Connecticut that will see them stop charging customers a $7.00 per month “Internet Infrastructure Surcharge.” While the ISP isn’t being forced to refund any fees to customers, part of the settlement includes a pledge to spend $42.5 million to expand its fibre network in the state. This settlement does not seem to impact Frontier’s billing practices in other states. We talk about the regulatory environment as being a potential catalyst for demand, and the effect of public policy can be seen in this point and can be a powerful catalyst in the deployment of new technology.

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, it will only become more critical.

Digital Infrastructure and Connectivity UCITS ETF Performance Table

(As of 30.09.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/09/2022.

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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