Digital Infrastructure Monthly Report | March
- 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
- 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
BITA Digital Infrastructure and Connectivity Index (TBDIGI) Performance
Past performance is no guarantee
of future performance.
Source: Tematica, BITA
Index, in USD. 12 Month figures based on 29.02.20 - 28.02.21.
February saw the digital ETF advance 0.96%, but behind this modest
return lies a tale of two ends of a fairly hefty barbell. The top ten
contributors to performance for the period represented 22.85% of the index but
contributed to approximately 320% of the return while the bottom ten detractors
to performance represented 13.83% of the index and contributed to approximately
-220% of January’s results.
The top ten contributing names, which represent 4 of all 6
segments, all share the same trait of being mostly consumer facing companies
with Shopify (SHOP) [16.60%], Wix.com (WIX) [41.09%], PayPal
(PYPL) [10.90%] and Square (SQ) [6.52%] contributing, as well as Intel
(INTC) [9.49%] and Nvidia (NVDA) [5.58%]. Another indicator that
while there does seem to be light at the end of the Covid-19 tunnel, the shift
to “everything online” has begun to entrench itself with consumers.
Dragging on February’s performance tended to be more
commercial focused names with GTT Communications (GTT) [-59.57%] holding
the unenviable position of worst performer as its credit score was downgraded
by Standard & Poors from “CCC” to “CCC-“, with a negative 6 month outlook
warning of a further reduction to “CC”.
Communications provider Iridium (IRDM) [-12.86%] was downgraded earlier
in the month by Barclays analysts from “Overweight” to “Underweight”
despite a strong Q4 earnings release and news that it will be joining the
S&P Midcap 400 Index.
Assumedly, managements comments regarding continued COVID related impacts and perceived pressure from SpaceX’s
Starlink satellite internet service, coupled with insider selling of
approximately 380,000 shares, led investors to take some profits given the
name’s 38% YTD return through February 8th.
Past performance is no guarantee of future performance.
Source of all data: Tematica Research
Digital Infrastructure and Connectivity
UCITS ETF Performance Table
As of 28.02.21
Digital Infrastructure and Connectivity UCITS ETF
Tematica BITA Infrastructure and Connectivity Index (TBDIGI)
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 28/02/2021
The US Federal Communications Commission (FCC) announced the
results of the 3.7 GHz Service Auction
with a total of just over $81 billion spent on 5,684 licenses. Verizon (VZ)
(bidding as Cellco Partnership) won the most bids ending up with 3,511 licenses
and spending approximately $45.5 billion followed by AT&T (T) spending
$23.4 billion for 1,621 licenses.
To us, this speaks directly to the virtuous circle that underpins the strategy
of investing in Digital Infrastructure and Connectivity.
Last month’s stories of Apple (AAPL) and Hyundai
subsidiary KIA Motors joining forces to develop an Apple-branded autonomous
electric vehicle turned out to be just that, stories. While a collaboration
with KIA has been debunked, Apple has been positioning itself over the years to
be able to develop such a vehicle and expectations are that “Project Titan” is
expected to be delivered sometime in 2024. As we have said before, advancements
and wide scale adoption of fully autonomous vehicles represent a huge
opportunity for both digital infrastructure and especially connectivity names.
Global semiconductor chip availability has quickly become a
real issue. So much so that U.S. President Joe Biden recently signed an Executive
Order requesting a review of the supply chain for the Medical, Defense,
Communication and other sectors.
Seeing as the U.S. accounts for just about 12% of global chip manufacturing expect
either some new entrants or M&A activity in the mid- to long-term. Will
“dependence on foreign silicon” be the new political rallying cry? Only time
Wix.com (WIX) posted a strong quarter, beating
revenue expectations by 4.6%, and while they posted a $0.03 EPS loss, consensus
was for the company to post a loss of $0.11 per share. Conversations around
earnings was largely positive as many analysts are upbeat on Wix.com’s
prospects for additional product launches and overall growth.
Maxlinear Inc (MXL) reported stronger than expected
Q4 revenues of $197.4 million (up 24% quarter over quarter and 178%
year-over-year) despite both gross and operating margins being lower as
compared to the same year-ago period.
The company announced that one of its new devices was selected by the Wi-Fi
Alliance as an official Wi-Fi 6E testing device.
Worldwide (EEFT) did
better than expectations posting revenues of $706 million for the fourth quarter
and while year over year numbers were lower the company did see advances in
their Electronic Funds Transfer (EFT) and electronic payments businesses.
January quarter revenue that rose 13.6% YoY with Semiconductor Solutions
revenue up 17% YoY and Infrastructure Software revenue up 5% YoY. During the
quarter wireless related semiconductor revenue jumped 52% YoY, accounting for
40% of the Semiconductor Solutions revenue, and Broadcom sees its wireless
revenue in the current quarter up 30%-40% YoY. Networking chip revenue rose 15%
YoY “driven largely by data center and global telcos, which continue to upgrade
their infrastructure and network.
the World Economic Forum’s The Future of Jobs Report 2020, 84% of employers are
set to rapidly digitalise working processes, including a significant expansion
of remote work—with the potential to move 44% of their workforce to operate
remotely, which means continuing demands on the world’s digital infrastructure
to support a more geographically distributed workforce. But
that isn’t the only change we see. By 2025, according to the report, the time
spent on current tasks at work by humans and machines will be equal, which means
significant changes to the global workforce to address the growing skills gap.
In fact, on average companies estimate that around 40% of their workforce will
require reskilling of six months or less and 94% of business leaders report the
expect employees to pick up new skills on the job, up from just 65% in 2018.
How are they going to get those skills? Increasingly through online learning
solutions, which again, means further demands on the digital infrastructure.
The US Senate
is considering including in a new bill to boost competitiveness against China
with $30 billion in funding for previously approved measures to supercharge the
country’s chipmaking industry. Spearheading the package that is expected to be
voted on in April is US Senate Majority leader Chuck Schumer.
pledged to boost spending and drive research into cutting-edge chips and
artificial intelligence in its latest five-year targets. China also targets
getting 56% of the country on faster fifth-generation or 5G networks. The
5G IoT market size is estimated to grow at a CAGR of 56.2% from $0.7 Billion in
2020 to $15.9 Billion by 2027 as the number of connected devices ranging from
consumer wearable devices and industrial devices to connected cars reaches 22-25
billion by 2025.
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 good s and services to
the various segments in the digital infrastructure and connectivity space.
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