International Circuit

A New Investment Fund Focusing On 5G Shows Promise For The New Year

December 18, 2019

The Defiance Next Gen Connectivity ETF (FIVG) offers a new way for investors to benefit from the coming decade’s 5G boom

Based on the BlueStar 5G Communications Index, the FIVG was launched in March earlier this year. This index, which incorporates the companies directly implementing 5G, uses several qualitative and quantitative criteria to select which stocks are included. Currently, the FIVG primarily comprises equipment and semiconductor stocks, such as Skyworks and Ericsson, but major telecommunications companies like Verizon and AT&T are also included.

Due to a reshaping of Standard & Poor’s sector classifications, last year saw companies like AT&T and Verizon shifted to a new communications services index dominated by media giants like Facebook, Alphabet (owner of Google and Youtube), Disney, and Netflix. This dilution of the previous index left a gap in the market for a pure telecoms index, particularly one that specialised in 5G.

“Many institutional clients didn’t like this [the new index classifications],” said Paul Dellaquila, president of Defiance ETFs. “They were already overweight with the FAANG stocks and wanted a pure telecom fund. There also was an overwhelming interest in 5G.”

Despite widespread excitement about the rollout of 5G, since beginning trading in March the FIVG has lagged behind the general market. The index is up only 5% since its launch – a somewhat underwhelming result when compared to the more than 15% increase enjoyed by the S&P 500.

This stunted growth may well be a result of the ongoing unrest within the telecoms industry, with companies particularly wary of potential tariffs from China.

“Chip stocks and network equipment providers definitely got caught up in China trade talk concerns,” Dellaquila said.

Nonetheless, investors are optimistic about the incredible growth potential of this index as the era of 5G begins to become a reality. Having launched with $2.5 million in assets under management, the FIVG now has almost $135 million. The index will be rebalanced every June and September, leaving scope for more companies to be added, particularly as more companies launch their own 5G networks.

“The future looks much brighter as these companies will benefit from the future global rollout of 5G,” concluded Dellaquila. – Total Telecom