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Digital Infrastructure Monthly Report | April

  • 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.        
  • 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        
  • Both China and the US are ramping efforts to accelerate the adoption of 5G and their respective semiconductor ecosystems amid rising wireless and data centre chip demand.

 

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI) Performance

March

12 Month*

-1.04%

87.97%

Past performance is no guarantee of future performance. Source: Tematica, BITA *TNR Index, in USD. 12 Month figures based on 31.03.20 - 31.03.21.

 

Performance Review

Breakdown of Performance

March saw the index decline 1.04% driven largely by Digital Solutions & IP names. The top ten contributors to performance for the period represented 15.70% of the index but contributed to approximately -167% of the return (as the index had a negative return this month positive contribution goes against the result and reads as negative) while the bottom ten detractors to performance represented 19.69% of the index and contributed to approximately -219% of March’s results.

The top ten contributing names to the Digital ETFwhile representing 4 of all 6 segments showed some concentration in Digital Transmission names with Cisco Systems (CSCO) [15.24%], Neophotonics (NPTN) [24.35%], Netapp (NTAP) [16.09%] and American Tower (AMT) [10.61%] making appearances, Mediatek (2454-TW) [5.59%], Intel (INTC) [5.30%] and Nvidia (NVDA) [5.58%] contributed as news was released about these companies product mix and production plans. The Biden Administration’s proposed $3 trillion (yes, with a “T”) infrastructure spending proposal clearly had an impact on broader markets but it is yet to be seen how many of those dollars will end up earmarked for digital over physical infrastructure improvements.

Of the top ten detractors of the Digital ETF's March performance, Digital Solutions & IP names filled 7 of those slots. February top ten contributors Wix.com (WIX) [41.09%] and Paypal (PYPL) [10.90%] came under some pressure in March returning -19.90% and -6.55% for the period, respectively. As researchers presented a review of vulnerabilities in processors manufactured between 2011 and 2019 by Advanced Micro Devices (AMD) [-7.11%] shares sold off and saw AMD also flip from February top 10 to March bottom 10 contributors.

 

Digital Infrastructure and Connectivity UCITS ETF Performance Table

 

1M

3M

6M

YTD

12M

SI

Digital Infrastructure and Connectivity UCITS ETF

-1.12%

6.45%

NA

6.45%

NA

20.58%

Tematica BITA Infrastructure and Connectivity Index (TBDIGI)

-1.04%

6.66%

27.86%

6.66%

87.97%

21.19%

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 31/03/2021

 

Industry News

Micron (MU) sees “strong demand for memory and storage, driven by artificial intelligence and 5G across the data center, the intelligent edge, and user devices.”

In response to what is seen as a period of higher growth due to multiyear megatrends of 5G and high-performance computing, Taiwan Semiconductor (TSM) plans to spend $100 billion over the next three years to expand its chip fabrication capacity.

Exiting January, 144 operators have launched commercial 5G networks in 61 countries compared to 806 operators with commercially launched LTE networks according to the Global mobile Suppliers Association. More than 260 operators are investing in 5G networks in the form of spectrum auctions, tests, trials and pilots.

The number of announced 5G devices continues to grow rapidly, exceeding the 700 mark for the first time in April 2021. This is more than 25% higher than the number of announced devices at the end of Q4 2020 and is an increase of 11.9% over the last month alone.

Global carrier WiFi will reach $4.2 billion by 2026 with Asia Pac leading followed by North America and Europe, driven in part by WiFi6 upgrades.

 

Constituent News

Researchers announced in March that processors developed by Advanced Micro Devices (AMD) from 2011 through 2019 were susceptible to attacks similar to the “Spectre” vector previously discovered to impact Intel (INTC). While the attacks can’t be initiated remotely and require some (unwitting) user participation they still do represent a serious security threat. AMD has provided both hardware and software solutions but they appear to come at the expense of processor performance.

Square (SQ) announced its industrial bank, Square Financial Services (SFS), has begun operations after completing the charter approval process with the FDIC and the Utah Dept of Financial Institutions. The primary purpose of SFS will be to offer business loan and deposit products, beginning with underwriting and originating business loans for Square Capital's existing lending product.

Broadcom (AVGO) announced revenue for the quarter rose 13.6% year over year with Semiconductor Solutions revenue up 17% while Infrastructure Software revenue rose 5%. During the quarter wireless related semiconductor revenue jumped 52% year over year, accounting for 40% of the Semiconductor Solutions revenue, and Broadcom sees its wireless revenue in the current quarter up 30%-40% year over year. Networking chip revenue rose 15% “driven largely by data center span in the cloud and global telcos, who continue to upgrade their infrastructure and network.”

Cloudera (CLDR) reported January quarter results that topped consensus revenue and EPS expectations but the company issued mixed guidance for the current quarter and downside guidance for the current year. For its fiscal 2022, the company sees EPS of $0.35-0.39 vs. the $0.48 consensus with revenue in the range of $907-927 million vs. the $945.2 million consensus estimate. Included in that revenue forecast is the expectation subscription revenue will be in the range of $822-$832 million.

 

Outlook

As the Biden Administration’s $3 trillion infrastructure bill starts to make its way through the legislative process a debate is emerging as to what constitutes “infrastructure” in 2021. The United States is a country where some are still counting on the resurgence of the coal mining industry to bring prosperity back to their region. The idea that anything that is not a physical road, bridge or other structure just doesn’t fit that narrative. Further, it is not just transportation that needs upgrades. Water and power (electricity) distribution networks are sorely in need of rejuvenation as well. Still, the ways that the global economy has adapted (and continues to adapt) over the past year has shown that digital infrastructure, once dubbed the “information superhighway” is as much as necessity as any traditional physical infrastructure. While the private sector has a fairly strong digital infrastructure development roadmap, the addition of public funds should incentivize companies to extend coverage and access maps to more rural areas of the country. This will provide serious long-term benefit in the form of stable platforms for commerce, education and once adoption rates are high enough, civic engagement.

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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