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Digital Infrastructure and 5G Monthly Report | October

 

5G ETF Monthly Report: Key Takeaways

  • While Covid-19 related restrictions and supply chain issues continue to put pressure on the overall global economy we see this as a short-term phenomenon, like what we saw in 2Q 2020, that should be a bump in the road for 5G, data centre, network infrastructure and other deployments. If anything, these problems heighten the need for greater resiliency, which will provide additional tailwinds.
  • September saw Data Networks, and Digital Solutions & IP names drive roughly 66% of period returns in the index of our 5G ETF. [1]
  • Advanced Micro Devices (AMD-US) continues to face pressure over perceptions of product positioning towards cryptocurrency miners as opposed to video game enthusiasts. Current silicon shortages have had an impact on Digital Processing names in general and there seems to be an industry consensus that supply shortages will begin to dissipate in 2022. [22]
  • Switch, Inc. (SWCH) announced it had appointed former Google Cloud executive Jonathan H. King as the company’s Chief Revenue Officer [3] as it looks to position itself to best execute on its current 1.3 million square feet expansion plan.
  • In our view, coronavirus pandemic continues to accelerate the global economy’s embrace of technology, especially in education, remote work, communication, shopping, transacting, and data processing.
  • The third quarter 2021 earnings season has served up several data points confirming the accelerating pace of 5G deployments and the adoption of new technologies that will fuel the virtuous cycle of content demand and creation. That virtuous cycle will continue to drive demand for 5G, WiFI-6, and gigabit fibre buildouts. Please note that all performance figures are showing net data. [4]

 

Macro Outlook

The main driver of this strategy is the Virtuous Circle of capacity creating opportunity and opportunity, once seized, prompting the need for more capacity. As thematic investors, we break the economy into three components: consumers, corporations, and public policy. When we see consumers and corporations pulling in the same direction, we know we have a solid investing theme. When public policy joins them, setting performance thresholds or providing development incentives such as public works projects, all three are moving in the same direction, creating powerful thematic tailwinds, which is precisely what we see for digital infrastructure development.

Looking ahead, we (like many in the Digital Processing space) are optimistic that current supply chain woes and silicon shortages will be resolved in the coming quarters. The bigger question for us at least in the U.S. markets for us has to do with the current $1 trillion infrastructure spending bill that is winding its way through Congress. While $65 billion is a large amount of money on an absolute basis it is only incrementally additive to the overall digital infrastructure & connectivity marketplace. [5] What really excites us about this spending bill is that more bandwidth and storage only serve to spur the economy to develop uses for that new capacity, reinforcing the virtuous circle. This focus on the development of a nation’s digital infrastructure as vital to its future competitiveness is evident in many countries around the world, and as we look forward to emerging technologies such as AR/VR and the metaverse, it will only become more critical.

 

5G ETF and Index Performance Table (As of 31.09.2021)

 

1M

3M

6M

YTD

12M

SI

Digital Infrastructure and Connectivity UCITS ETF (DIGI)

-6.42%

-6.46%

2.66%

9.28%

NA

23.79%

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI)

-6.37%

-6.37%

2.94%

9.79%

31.62%

24.76%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/09/2021. 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. Please note that all performance figures are showing net data.

 

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