Latest Digital Infrastructure ETF Monthly Report | HANetf

5G ETF Key Takeaways | September

• Digital Infrastructure and Connectivity companies pulled back slightly as the fever of AI seemed to ebb slightly, seeing the 5G ETF index return-1.13% in August. From an advance/decline perspective, 26 names saw gains while 33 lost ground during the month, almost a perfect inverse from July.
• Data Centers were the only net positive segment this past month, with VNET Group (VNET-US) gaining 26.26% as it looks to return to the highs of February this year.
• Looking through the list of contributors to performance, the top ten spots are filled with names from every segment which we feel speaks to market euphoria settling down and investors paying more attention to company fundamentals.
• Highlights included Digital Connectivity name Arista Networks (ANET-US) gaining 25.88% after posting strong earnings and receiving ratings and price target upgrades from various analysts. Fastly (FSLY-US) jumped 29.50% after posting strong 20% YoY growth in revenues, increasing gross margin to 52% as compared to 45% in the year ago period, and almost halving the 2022 per share loss of $0.14 to $0.08 in 2023.
• Detractors from performance included Infineon Technologies (IFX-DE) which declined -18.75% after traders decided that the company’s participation in a 300mm fabrication plant joint venture with Taiwan Semiconductor (2330-TW), NXP Semiconductors (NXPI-US) and Robert Bosch GmBH might not be the best thing for shareholders given Infineon’s 10% ownership stake in the deal. Another name that can’t seem to get out of its own way is Cambium Networks (CMBM-US) which fell -43.15% in August after reporting dismal earnings or $0.03 per share as compared to analyst estimates of $0.21.

Source of all performance data: Tematica Research / Bloomberg. Data as of 31.08.2023. 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 researchers, 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, the momentum of all three creates powerful thematic tailwinds, which is precisely what we see for digital infrastructure development.

Our story remains the same as we see a slight dip in the near-term outlook for some companies coupled with strong year to date returns are pointing to cooling in some names. While the jury is still out on what the final effect of the Federal Reserve’s balance sheet deleveraging process will be, consensus continues to fall on the side of “softer than expected.” The high-level sentiment exiting August is very much the same as it was coming out of July which is to say that while there are some names in the index that are foreseeing a tougher current environment, they also see light at the end of this particular tunnel quickly approaching, as is evidenced by the 2024 sales growth forecast of 23% and the 2025 sales growth forecast of 66%. 

As we continue to state, it is our belief that we are relatively early in the AI-led development and buildout phase and while this current surge will not be perpetual it will set the stage for the advancement of the Virtuous Circle. Again, while AI is the new firestorm that is racing through the economy, we maintain that we see industrial IoT as another catalyst for this strategy given the need for both IoT devices and the networks to support them.

These and other announcements keep us optimistic that while we are going through some economic uncertainty, we remain excited about funding beginning to flow for promised infrastructure spending. That legislation and other bills will spur more demand for bandwidth and storage and reinforce 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.

5G ETF Performance Table
 As of 31.08.2023

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2023.

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. When you invest in ETFs and ETCs your capital is at risk.