Digital Infrastructure Monthly Report | December

• Digital Infrastructure and Connectivity, which is the main focus of our technology ETF, has become increasingly infused into commercial and consumer experiences worldwide from music, movies and video games to education to increased acceptance of remote work and virtual meetings.
• The 2020 Coronavirus pandemic greatly accelerated the global economy’s embrace of technology, especially education, remote work, communication and data processing.
• 5G represents an upgrade cycle in this sector; it is at currently the fifth such opportunity for infrastructure and connectivity focused companies.
• As digital infrastructure improves, the increased capacity spurs both increased use and innovative development of data intensive platforms that push the limits of the newly improved network.

Performance Review

• In a broad rally, Data Networks and Digital Services & IP names led the index this month followed closely by Digital Processing names
• Digital Connectivity and Data Center names lagged on a relative basis
• Of the 84 names in the technology ETF portfolio, only 9 had negative returns this month
• Strengthening TWD and JPY added marginally to returns while EUR strength was strongly additive
• Top ten names contributed to roughly 40% of index returns
• Bottom ten names detracted to -1.36% of index returns

Tematica BITA Digital Infrastructure and Connectivity Index Performance

Past performance is no guarantee of future performance. Source: Tematica Research, BITA *12 Month figures based on 30.11.2019 – 30.11.2020

In a reversal of last month Advanced Micro Devices (AMD) was the largest mover this month, contributing to 8.55% of the overall return. Nvidia Corp (NVDA) also rebounded in November contributing to 2.53% of overall return for the month. In anticipation of Black Friday and Cyber Monday sales, Fastly Inc (FSLY) and Shopify (SHOP) had a strong month each contributing over 3.90% to November’s result and payments processor Square (SQ) posted a 36.21% return for the month, contributing to 6.70% of the index return.

As the U.S. presidential election results came into focus for everyone and promising vaccine news emerged, the markets rallied through November. In as much as a “return to normal” seems to be top of mind, global dependence on digital infrastructure has been reinforced over the past few months and with the holiday shopping, video game console upgrading and virtual get-together season starting, investors continue to place more importance on those names that make all of this activity possible.

Past performance is no guarantee of future performance.

Source of all data Tematica Research. All data as of 30.11.20

Digital Infrastructure and Connectivity UCITS ETF Performance

Total Return NAV to Date (up to 30/11/2020)

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. Source: Bloomberg / HANetf. Data as of 30/11/2020 *Fund inception: 08/10/2020

Industry News

Sony Corp (SNE) officially launched the latest generation of its PlayStation gaming platform, the much anticipated PS5 on November 19th in Europe. As the Coronavirus Pandemic was unfolding back in March, Sony engineers announced that it was limiting download speeds of its PlayStation platforms[1] in an attempt to help ISPs manage bandwidth, but there has not been any notice of a similar action to manage bandwidth with this release.

Microsoft Corp (MSFT) launched its latest version of the Xbox gaming platform on November 10 which saw 108 petabytes of data flowing through the networks of UK internet provider Virgin Media[2] setting a new record for the service.

Switch (SWCH), Dell Technologies (DELL) and FedEx (FDX) announced they will be working together to build out a series of Edge Computing locations with Dell providing the hardware, Switch providing the connectivity and FedEx providing the real estate to house the centers[3].

Constituent News 

  Past performance is no guarantee of future performance. Source of all data Tematica Research. All data as of 30.11.20

Digital Infrastructure and Connectivity UCITS ETF Performance Attribution Tables

Attribution analysis is calculated by comparing the weighted period price return of a security to the net of taxes total return index results and as such represents an approximation of the impact a name or group of names has had on the overall index returns for the period. 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. Source: Tematica Research. Data as of 30/11/2020

Outlook

As more networks transition to deploying fully-fledged standalone 5G beginning in the 2020/2021 timeframe, the full impact of 5G on IT hardware spending will grow to $326 billion by 2025 according to Moor Insights & Strategy. This is not limited to corporate spending either as Qualcomm (QCOM) forecasts 175 to 225 million 5G handsets for 2020 rising to 450 to 550 million in 2021 and CCS Insight sees 60% of all phones sold in Western Europe and North America in 2021 supporting 5G, growing to 85% in 2024.

With new gaming platforms from both Sony and Microsoft, an entrenched work from home mind-set not to mention a continuing 5G rollout (and initial steps toward 6G development) 2021 is shaping up to be another year of focus on digital infrastructure. A Deloitte Consulting LLP analysis estimates that the United States requires between $130 and $150 billion over the next 5 to 7 years to adequately support broadband competition, rural coverage and wireless densification

With regards to competition, rural coverage and densification, another tailwind (or at least viewed as positive by many) for digital infrastructure investors is the November 30 announcement by current FCC Chairman Ajit Pai that he will be stepping down from his post effective January 20, 2021. Mr. Pai is credited by many as being a roadblock to the widespread development of broadband to rural communities in the US as well as the person responsible for the death of Net Neutrality. Some maintain that the FCC under his reign has helped reduce competition in the space and encouraged practices like throttling and “zero-rating” (reducing streaming speeds or charging fees for competitors’ offerings while providing one’s own offering at high quality, zero-cost bandwidth). A return to a relatively level playing field can only increase the velocity of the digital infrastructure virtuous cycle.

The increasing global dependence on the internet coupled with the virtuous circle of increased storage and processing capacity leading to more use and innovative application development is an ongoing process. With upgrade cycles like 5G (and 6G in the next decade) present both a short- and long-term opportunity for those companies that provide goods and services to the various segments in the digital infrastructure and connectivity space.

Fund Details

The Digital Infrastructure and Connectivity UCITS ETF is a UCITS compliant digital infrastructure ETF domiciled in Ireland.  

Our Technology ETF captures the companies that enable the digital applications of today and those that will redefine how people work, live and play tomorrow.  It provides exposure to the explosive growth of the digital infrastructure virtuous cycle of expanding data, applications, and bandwidth that drives exponential network growth and development of new technologies.   

Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.

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