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Digital Infrastructure and 5G Monthly Report - July

 

Learn more about our 5G ETF

  • Demands for increased storage capacity, higher bandwidth, and faster transmission speeds do not represent a cyclical trend but are continually increasing as infotech becomes an integral part of every aspect of our lives.
  • The Coronavirus pandemic continues to press 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 cycle of connectivity and use whereby greater bandwidth leads to more app development and more connected devices, which in turn generate even more data that can be monetized, thus driving the need for even more capacity.
  • Both China and the US are ramping efforts to accelerate the rollout of 5G and their respective semiconductor ecosystems amid rising wireless and data centre chip demand.

 

Performance Review

June saw the underlying index of our 5G ETF advance 6.57%, driven largely by Digital Solutions and IP names. The top ten contributors to performance for the period represented 24.40% of the index but contributed to approximately 67% of the return, while the bottom ten detractors to performance represented 17.96% of the index and had a negative contribution to returns of approximately -14% of June’s results.

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI) Performance

June

12 Month*

6.57%

53.02%

Past performance is no guarantee of future performance. Source: Tematica, BITA *TNR Index, in USD. 12 Month figures based on 30.06.20 - 30.06.21.

 

The top ten contributing names represented four of the six segments and showed concentration in Digital Solutions & IP names with Shopify (SHOP-US) [17.55%], Fastly (FSLY-US) [26.30%], Cloudera (CLDR-US) [23.33%], and Sierra Wireless (SWIR-US) [22.04%] combined to account for approximately 20% of index returns. Digital Processing names Nvidia (NVDA-US) [23.13%] and Advanced Micro Devices (AMD-US) [17.30%] accounted for approximately 25% of period returns as NVDA was selected by EV manufacturer Gaussin as the platform for their vehicles, and AMD advanced on speculation that the Xilinx acquisitions will not be held up by regulators.

Although all six segments were represented in the top ten detractors to June’s performance, it should be noted that only twenty of the 79 names in the index had negative returns this month. Digital Processing name Mediatek (2454-TW) [-15.04%] once again led the detractors from return representing approximately 3.5% of the period's decline based on continued Taiwanese Covid-19 concerns. Digital Transmission names also featured in June’s detractors from performance as investors did not seem to be impressed that the 2 million share secondary offering proposed by Cambium Networks (CMBM-US) [-16.22%] would benefit Private Equity firm Vector Capital and not Cambium itself.

Past performance is no guarantee of future performance. Source: Tematica Research/ BITA. Data as of 30.06.2021

Digital Infrastructure and Connectivity UCITS ETF Performance Table (As of 30.06.21)

 

1M

3M

6M

YTD

12M

SI

Digital Infrastructure and Connectivity UCITS ETF (DIGI)

6.50%

9.75%

16.82%

16.82%

-

32.33%

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI)

6.57%

9.94%

17.26%

17.26%

53.02%

33.24%

Performance before inception is based on back-tested data. Backtesting is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a 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 30/06/2021

 

Industry News

The virtuous circle describes the catalyst chain that drives the evolution of digital infrastructure. From the “develop more capacity and bandwidth” segment comes news of 800 GB per second Ethernet (GBE) networks that are beginning to supplant existing 400 GBE. The designs were presented at the Optical Fibre Communication Conference, and Exhibition held virtually this month.[1] Per the developer, "Next-generation lasers using this same 'toolbox' of advanced semiconductor and packaging processes may enable higher speeds, longer reaches and lower costs with the competitive levels of performance, reliability and power consumption." 

According to Bloomberg News, Microsoft (MSFT) will open four additional data centers in China by early 2022 as part of a wider push to increase its services across Asia. It hopes to "capitalize" on a recent rise in demand for the internet. According to a white paper quoted by Microsoft,[2] the China cloud market is expected to reach $46 billion by 2023, driven in part by 63 percent of organizations in China leveraging cloud-related innovations to accelerate digitization in their products, payments, e-commerce, automation, and more exiting the pandemic. 

Singapore-based Princeton Digital Group (PDG), backed by private equity firm Warburg Pincus, announced it will invest $1 billion to build a data centre facility in Japan that will be fully operational by the end of 2023 or early 2024.[3] Alongside this announcement, PDG shared it is considering new ones such as South Korea and other Southeast Asian countries.

Mario Draghi, Italy’s prime minister, pledged to overhaul the country’s notoriously slow bureaucracy and legal systems and intends to use the €205 billion the country will receive as its share of the EU’s recovery fund to digitize the economy, as well as on infrastructure projects, climate and environmental initiatives, education, and health.[4] 

Telia (TSLNF) and Ericsson (ERIC) announced they achieved a Swedish 5G speed record, having notched up a 2.2Gbit/s connection on Telia's public 5G network using the 3.5GHz spectrum band and an iPhone 12 in central Stockholm.

Speaking at the French Tech Conference VivaTech, Facebook founder Mark Zuckerberg shared that while VR gaming is still the main focus of the virtual reality industry today, the development in the areas of social VR and VR fitness will be tremendous down the road. It’s this kind of innovation that drives the virtuous circle of digital content demand and creation that fuels digital infrastructure growth.

Apple (APPL) continues to focus on healthcare, and overall wellness, particularly with its Apple Watch. That device is one among a growing list of connected wearables focused on the healthcare market, which is expected to reach $60 billion by 2027, compared to $22 billion in 2020.[5] 

FedEx (FDX) and autonomous bot maker Nuro have announced they are partnering to develop a solution for the final or “last mile” delivery of customer packages. Nuro has had pilot programs in Arizona and Texas over the past few years, and this would be the first large-scale deployment of their technology. While truly innovative, once again, this collaboration could not succeed without a robust digital infrastructure supporting it.

 

Constituent News

Nvidia  (NVDA) got a boost during June as equity research analysts pointed to increases in demand on data center development. Raymond James analyst Chris Caso noted, “We’re convinced that data centre (business) has begun to reaccelerate due to hyperscale digestion, a resumption of enterprise activity, and rising virtualization.” The company also agreed to acquire DeepMap, a startup committed to building high-definition maps for autonomous vehicles to navigate the world safely. The terms of the deal weren't disclosed. This provides yet another example in the ongoing virtuous circle of increased capacity leading to innovation leading to demand for increased capacity.

Marvell (MRVL) reported April quarter earnings of $0.29 per share, $0.02 better than the consensus, while revenue for the quarter rose 20% YoY to $832.3 million vs. the $817.4 million consensus. For its current June quarter, the company sees EPS of $0.28-0.34 vs. the $0.30 consensus forecast with revenue of $1.033-1.097 billion vs. the $1.03 billion consensus.[6] 

Qorvo (QRVO) announced the interoperability of its DW3000 family of products with the Apple U1 chip used in iPhone and Apple Watch models and the new Nearby Interaction protocol specification draft unveiled at the 2021 Worldwide Developers Conference.

Intel (INTC) announced it is restructuring its Data Platform Group into two new units: the Datacenter and AI unit and the Network and Edge Group. The company is also creating two new business units: the Software and Advanced Technology Group and the Accelerated Computing Systems and Graphics Group.

T-Mobile (TMUS) is marketing its 5G network by equipping Major League Baseball players at the 2021 Home Run Derby with 5G point-of-view cameras on their helmets, including the catchers' masks. The POV cameras are also coming alongside a new MLB AR mobile app to explore Coors Field in 3D and get detailed stats for each swing. People with 5G phones will also get extra stats like hang time and exit velocity.

 

Outlook

Recently in Washington, the spotlight was turned to online privacy, but instead of talking about rights of anonymity while online, the discussion was framed within the Fourth amendment of the US constitution. For those not familiar, the Fourth Amendment addresses “unreasonable” search and seizure and lays out the framework that guides the issuance of actions the state may take in violating a citizen’s right to privacy. There is now a call for the state to broaden the interpretation of the fourth amendment to include individuals’ digital data stored on third-party servers. Currently, cloud storage providers will often receive orders to relinquish customer files with little to no justification beyond what has been described as “boilerplate secrecy orders.” Despite the historically high levels of rancour in Washington, this move has gained strong support from both parties.

The increasing global dependence on the internet coupled with the virtuous cycle of increased storage and processing capability leading to more use and innovative application development is an ongoing process. Upgrade cycles like 5G (and 6G in the next decade) present both short- and long-term opportunities for those companies that provide goods and services to the various segments in the digital infrastructure and connectivity space. The anticipated 5G smartphone shift should also spark interest in the mobile IP licensing businesses at Nokia and InterDigital (IDCC), among others, as does the growing 5G conversation around the connected car and IoT applications.

 

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