Digital Infrastructure ETF Monthly Report | November

5G ETF Key Takeaways | November

• Digital Infrastructure and Connectivity companies, along with the rest of the equity market, continued to slide through October as the as the 5G ETF index closed out the quarter continuing the trend established in the past two months, declining an additional -6.24%. From an advance/decline perspective, it was a tough month all around as 15 names saw gains while 48 lost ground during the month.
• Relative Strength this month was again found in the Data Center segment, which was spurred on by gains in all segment constituents except for China-focused GDS Holdings (GDS-US). Shares of the company fell -5.93% as China continues to work towards resolving its ongoing corporate debt issues.
• The list of top ten contributors to performance in October had representation from all segments except Data Centers with Mediatek (2454-TW) [14.01%] topping the list due to its weight in the index despite Comtech Communications’ (CMTL-US) 39.43% gains this month on a strong reported quarter and the mid-month sale of its Power Systems Technology product line.
• Other gainers this month included Digital Transmission name American Tower (AMT-US), which traded up 9.34%, and Digital Connectivity name Arista Networks (ANET-US) which rose 8.94% on a strong reported quarter, prompting analyst rating upgrades and increased price targets.
• Detractors from performance were plentiful but aside from a handful of names, performance was tied to macro signals, including a strong dollar, persistent inflation, and a hawkish Fed. Companies whose shares did trade down on fundamentals included CommScope Holding Co (COMM-US), which was cut in half and then some, down -55.96%. Most of that move came after the company issued a massive earnings warning on October 30, indicating that quarterly sales could be down as much as -30% YoY and EPS could come in at a roughly $4 per share loss. Despite this reset, the company maintained that “we feel we are well-positioned to benefit from major government programs and technology cycles that will enable us to reach our long-term goals, including wireless, government broadband investments, and enterprise solutions.” 

Source of all performance data: Tematica Research / Bloomberg. Data as of 31.10.2023. 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, precisely what we see for digital infrastructure development.

Despite the evolving macro environment that points to a slowing global economy, there have been some bright spots in both the current environment as well as the mid-term prospects for Digital Infrastructure. In addition to the government spending comments made by CommScope company management, American Tower management said it sees “a long tail of network investment to come.” They take this view based on, among other things, “industry forecasts for growth in mobile data consumption.” At a high level, they foresee a new wave of investment as the 5G rollout moves from its initial stage to the second stage, where existing networks begin to densify, and we begin to see the beginning of the real impact of 5G technology. In other words, they see the Virtuous Circle pushing the industry forward and prompting record-setting investment flows in the digital infrastructure space. Helping support this is the rebound in the smartphone market and normalization in the PC market that suggests a better 2024.

We are still in relatively early innings fora AI-led development and buildout phase, and all indications it will set the stage for further acceleration for Virtuous Circle. While much of the market’s focus is on AI and its promised productivity disruption, industrial IoT is another catalyst for Digital Infrastructure & Connectivity 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 31.10.2023

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/10/2023.

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.