5G — the next generation of wireless communication systems — doesn’t officially rollout until 2020, but there are sprinklings of the move happening around the world this year and major economies are already holding 5G spectrum auctions.
While 5G is often viewed as a communications theme (and it is), it also has widespread implications for dozens of other industries. Energy, financial services, healthcare, media, retail and transportation are among the everyday industries that will be affected by the deployment of 5G systems.
Of course, there are multiple avenues for investors looking to participate in the 5G boom. Not surprisingly, those avenues include 5G ETFs. While the notion of 5G investing is still in its formative stages, there are already some funds that can accurately be deemed “5G ETFs.”
Here are some if the 5G funds to consider right now.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
Expense ratio: 0.60% per year, or $60 on a $10,000 investment.
There are significant real estate demands associated with the 5G rollout, enhancing the 5G ETF status of the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSEARCA:SRVR). Data and infrastructure real estate investment trusts (REITs) are pivotal pieces of the 5G puzzle and SRVR is the only fund explicitly dedicated to those REITs.
While some of SRVR’s largest holdings also reside in traditional REIT benchmarks, such as the Dow Jones U.S. Real Estate Index, SRVR’s exposure to those names is considerably higher. This 5G ETF allocates nearly 48% of its combined weight to American Tower (NYSEARCA:AMT), Equinix (NASDAQ:EQIX) and Crown Castle International (NYSE:CCI). Conversely, those stocks combine for just over 15% of the Dow Jones U.S. Real Estate Index.
SRVR had a dividend yield of 3.67% at the end of last year, indicating investors are not sacrificing income to get involved with this REIT/5G ETF. More importantly, SRVR is delivering in terms of performance. This year, SRVR is thumping the largest U.S. REIT ETF by nearly 400 basis points.
Defiance Next Gen Connectivity ETF (FIVG)
Expense ratio: 0.30% per year, or $30 on a $10,000 investment.
The Defiance Next Gen Connectivity ETF (NYSEARCA:FIVG) is one of the first pure-play 5G ETFs and it is also one of the newest ETFs highlighted here after debuting earlier this month. FIVG tracks the BlueStar 5G Communications Index.
Holdings in FIVG “are part of the following categories: core carrier grade networking equipment including cellular antennas and routers, mobile network operators, satellite-based communications, enhanced mobile broadband chips, new radio technology, wireless network test and optimization equipment, cloud computing equipment, software defined networking or network functions virtualization, fiber optic cables, or cell tower and/or data center real estate investment trust,” according to Defiance ETFs.
Beyond an exciting investment thesis, one of the primary sources of allure with FIVG is its expense ratio of 0.30% per year. Among thematic ETFs, of which FIVG is certainly one, that fee is downright cheap.
Global X Internet of Things ETF (SNSR)
Expense ratio: 0.68% per year, or $68 on a $10,000 investment.
The Internet of Things (IoT) is fertile ground for 5G, giving the Global X Internet of Things ETF (NASDAQ:SNSR) plenty of chops as a 5G ETF. Many IoT applications are enhance connectivity, making its intersection with 5G expected and practical.
“5G is expected to help businesses more effectively manage the ever-increasing quantities of information produced by the Internet of Things, as well as improve the near-instantaneous communication necessary for mission critical services like robotics-assisted surgery or autonomous driving,” according to Global X research.
SNSR holds 50 stocks with an average market value of nearly $28 billion. Over 30% of the fund’s holdings are semiconductor stocks and while IoT, like 5G, is considered a growth theme, the average earnings multiples on SNSR’s holdings are reasonable. The ETF’s price-to-earnings ratio of 19.80 is just slightly higher than the same ratio on the Nasdaq-100 Index.
Communication Services Select Sector SPDR (XLC)
Expense ratio: 0.13% per year, or $13 on a $10,000 investment.
These days, communication services funds, such as the Communication Services Select Sector SPDR (NYSEARCA:XLC), command more attention for their exposure to stocks such as Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) than they do what these funds used to be. And what they used to be were more traditional telecom funds.
Some of that tradition remains as Verizon Communications (NYSE:VZ) and AT&T (NYSE:T) combine for over 9% of XLC’s weight, giving this fund some credibility as 5G ETF. Verizon is already offering 5G service in some U.S. Cities. By next year, AT&T expects its 5G service to cover more than 60% of the U.S. Population.
Enterprise demand for 5G-related services is expected to be lucrative for AT&T, Verizon and rival carriers, a theme that could enhance XLC’s positioning as a 5G ETF.
First Trust Nasdaq Smartphone Index Fund (FONE)
Expense ratio: 0.70% per year, or $70 on a $10,000 investment.
For the time being, the First Trust Nasdaq Smartphone Index Fund (NASDAQ:FONE) is a smartphone fund, but its time as such is limited. On or around May 29, FONE will become a 5G ETF known as the First Trust Indxx NextG ETF and begin tracking the Indxx 5G & NextG Thematic Index.
“The Index is designed to track the performance of companies that have devoted, or have committed to devote, material resources to the research, development and application of fifth generation (“5G”) and next generation digital cellular technologies as they emerge. By utilizing higher frequency radio waves, 5G networks enable significantly increased data rates, reduced latency and high-density connections that were previously unavailable in preceding technological generations,” according to a filing with the Securities and Exchange Commission (SEC).
FONE’s new ticker will be “NXTR.” The filing did not include mention of an expense ratio reduction, meaning the new 5G ETF will be pricey relative to its rivals unless the issuer cuts fees down the road.
Todd Shriber does not own any of the aforementioned securities.