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Digital Infrastructure Monthly Report | February

 

  • Demands for increased storage capacity, higher bandwidth and faster transmission speeds do not represent a cyclical or even secular trend, these are perpetually increasing demands as we move forward.
  • The 2020 Coronavirus pandemic has greatly accelerated the global economy’s embrace of technology, especially in education, remote work, communication, shopping, transacting and data processing, benefiting constituents of our digital ETF
  • The shift to 5G represents a significant point in the virtuous circle of increased network capacity leading to app, connected device, and data innovation leading to the need for increased capacity.
  • The installation of the Biden administration implies a position shift to infrastructure for both physical and digital systems.

 

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI) Performance

January

12 Month*

6.75%

59.01%

Past performance is no guarantee of future performance.

Source: Tematica, BITA *TNR Index, in USD. 12 Month figures based on 31.01.20 -31.01.21

 

Performance Review

Breakdown of Performance

January saw the underlying index of our digital ETF advance 6.75% lead by the Digital Processing segment which contributed to approximately 47% of the month’s return followed by the Digital Service & IP segment which was responsible for nearly 25% of the period results.

Individual Digital Processing standouts this month included Acacia Communications (ACIA) [56.80%], MediaTek (2454:TT) [17.44%] and Intel (INTC) [11.42%].

Notable Digital Services & IP names included Fastly (FSLY) [25.16%], Sierra Wireless (SWIR) [26.69%] and Casa Systems (CASA) [24.96%].

The Digital Transmission segment contributed to roughly 17% of the index period return lead by Ceragon Networks (CRNT) [60.07%] and recent addition Cambium Networks (CMBM) [46.53%].

While having an overall positive effect on January’s performance, Data Network names represented 6 of the largest 10 detractors to performance with names like Euronet Worldwide (EEFT) [-13.77%], Evertec (EVTC) [-11.75%] and Bottomline Techs (EPAY) [-9.40]

The top ten contributors to performance for the period represented 18.46% of the index and contributed to approximately 80% of the return while the bottom ten detractors to performance represented 15.79% of the index and contributed to approximately -17% of January’s results.

Past performance is no guarantee of future performance. Source of all data: Tematica Research

Digital Infrastructure and Connectivity UCITS ETF

Performance Table As of 31.01.21

 

1M

3M

6M

YTD

12M

SI

Digital Infrastructure and Connectivity UCITS ETF (DIGI)

6.71%

30.10%

NA

6.71%

-

20.87%

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI)

6.75%

30.29%

27.83%

6.75%

59.01%

21.30%

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: Tematica / BITA / HANetf. Data as of 31/01/2021

 

Industry News

In as much as the new Biden administration represents an overall sea-change in U.S. policies and positioning both overseas and domestically, newly installed U.S. Secretary of Commerce Gina Raimondo recently upheld actions taken by the Trump administration to place Huawei Technologies Co, ZTE Corp and other Chinese companies on the restricted trade list stating she knows of “no reason” why these companies should be removed. Both Huawei and ZTE have come under pressure through 2020 and have represented an opportunity for other equipment manufacturers to capture larger market share.

There have been a number of stories emerging that Apple (AAPL) and Hyundai subsidiary KIA Motors are in talks to develop an Apple-branded autonomous electric vehicle. Manufacturing is said to be based in North America, at Kia Motor’s Georgia plant, in an effort to better control development and production. Speculation is that aside from being a fully branded Apple product, the car will be designed to be fully autonomous and not “drivable” in the traditional sense. Advancements and wide scale adoption of fully autonomous vehicles represent a huge opportunity for both digital infrastructure and especially connectivity names.[1]

Shanghai announced the local government will build 8,000 5G base stations in 2021. The push is poised to spur the city’s infrastructure and get it ready for the digital era, authorities said.[2]

When semiconductor capital equipment company KLA Corp. (KLAC) reported better than expected December quarter results, it noted that digital transformation is enabling secular demand drivers such as high-performance computing, artificial intelligence, and rapid growth in new automotive electronics, and 5G communications markets.

 

Constituent News

Nvidia’s (NVDA) acquisition of Softbank held mobile phone chip maker ARM Ltd is being reviewed by EU and UK regulators over concerns that once ARM is fully integrated into Nvidia that Nvidia will change or even eliminate ARM current open-license model. The company maintains that it has “no intention” to modify ARMs existing business model. The $40 (€33) billion deal is expected to close in March.[3]

RF semiconductor company Qorvo (QRVO) crushed December quarter EPS expectations as revenue rose 26.6% year over year, modestly beating the consensus forecast. For the current quarter, Qorvo expects revenue of $1.025-1.055 billion, well above the $945.5 billion consensus with EPS of $2.42 at the revenue midpoint vs. the $1.31 consensus as the deployment of 5G, the roll-out of Wi-Fi 6 and 6E, and emerging technologies like precision location ultra-wideband continue. In the March quarter, at the midpoint of its guidance, Qorvo sees its mobile revenue rising 35% year over year.[4]

Skyworks (SWKS) not only beat December-quarter expectations but the RF semiconductor company boosted its outlook for the current quarter. In the quarter Skyworks’s mobile revenue was up 80% sequentially and it said that “demand for always-on connectivity is accelerating and is moving into new areas like telemedicine, remote learning, store-to-door delivery, and touch-less commerce.[5]

PayPal (PYPL) reported December quarter EPS that topped expectations and revenue for the quarter that rose 23.3% year over year, matching consensus expectations. During the quarter, the company’s Total Payment Volume (TPV) rose 39% year over year to $277 billion and added 16.0 million Net New Active Accounts (NNAs). For the current quarter PayPal sees revenue rising ~28% Year over year, 4.4% higher than expectations, and forecasts EPS up ~50% year over year.[6]

Nokia (NOK) reported better than expected December quarter revenue and EPS and issued in-line guidance for 2021 that includes revenue of €20.6-21.8 billion vs. the €21.36 billion consensus.  The company will provide a long-term outlook latest at Capital Markets Day on March 18.[7] [7] https://www.reuters.com/article/nokia-results/update-1-nokia-q4-profit-revenue-beat-as-ceo-lundmark-revamps-strategy-idUSL1N2KA0CG

Qualcomm (QCOM) reported mixed December quarter results with EPS that topped consensus forecasts while revenue for the quarter fell a tad short of expectations despite rising 62% year over year. The company issued in-line guidance for the current quarter with EPS of $1.55-1.75 vs. the $1.56 consensus on revenue of $7.2-8.2 billion vs. the $7.07 billion consensus. Qualcomm noted that its December quarter results would have been stronger absent supply constraints and expects 2021 handset volume to grow in the high single digits.[8] 

 

Outlook

While the global coronavirus response has moved into managing vaccine distribution there have been some hiccups with regards to supply levels and distribution logistics. Still, management consulting firm McKinsey & Company estimates that the US should be exiting the pandemic in late 2021 or early 2022. In as much as unemployed and furloughed workers want to get back to work (and they will over time), remote work is now part of “white collar” workers reality. The shift to living and working in lower cost, more rural areas brings with it the demand for a strong digital infrastructure. The immediate demands of networks will abate slightly over 2021 but the overall push for completion of the 5G upgrade and continued “last mile” development will remain strong.[9]

The increasing global dependence on the internet coupled with the virtuous circle of increased storage and processing capability 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.

 

Product Details

Digital Infrastructure and Connectivity UCITS ETF, is a UCITS compliant Digital ETF domiciled in Ireland.  

DIGI 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.

Visit the DIGI Fund Page for more information.

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