For investors paying attention to the communication services and technology sectors, there’s a good chance you’re hearing plenty about 5G, the next generation of wireless communication systems. There’s also a chance you’re looking to invest via 5G ETFs.
Wide deployment of 5G started in some locations last year, but the rollout should gain significant momentum this year. At its core, 5G aims to reduce latency and increase download speeds. For those that are confused by all this tech jargon, Verizon (NYSE:VZ) has a straightforward definition:
That means quicker downloads, much lower lag and a significant impact on how we live, work and play. The connectivity benefits of 5G are expected to make businesses more efficient and give consumers access to more information faster than ever before.
As the 5G theme unfolds, there will be both winning and losing ideas. Beyond some obvious, large-capitalization names, stock picking in the 5G landscape is likely to prove difficult.
For many investors, tapping 5G via exchange-traded funds will prove to be a sensible option. With that in mind, here are some of the top ideas among 5G ETFs to consider.
- Defiance Next Gen Connectivity ETF (NYSEARCA:FIVG)
- First Trust Indxx NextG ETF (NASDAQ:NXTG)
- VanEck Vectors Semiconductor ETF (NYSEARCA:SMH)
- Global X Internet of Things ETF (NASDAQ:SNSR)
- Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSEARCA:SRVR)
- SPDR S&P Telecom ETF (NYSEARCA:XTL)
- Global X MSCI China Communication Services ETF (NYSEARCA:CHIC)
5G ETFs: Defiance Next Gen Connectivity ETF (FIVG)
Expense ratio: 0.30% per year, or $30 on a $10,000 investment
A couple weeks shy of its first birthday, the Defiance Next Gen Connectivity ETF isn’t just a success story among 5G ETFs. It’s confirmation that some thematic funds can captivate investors. Earlier this year, FIVG topped $200 million in assets under management. Now it’s got $392 million, confirming investors are enthusiastic for 5G ideas.
FIVG follows the BlueStar 5G Communications Index. For a thematic ETF, its roster is fairly deep. It touches a wide array of segments applicable to 5G, including semiconductor names, telecom gear makers, satellite companies, cloud computing firms, and many more.
FIVG’s deep bench is important because the 5G ETF allocates about 10% of its combined weight to Nokia (NYSE:NOK) and Ericsson (NASDAQ:ERIC). These are both credible 5G plays, but also two of the theme’s most obvious laggards.
FIVG is on fire off its March coronavirus lows and is now higher by 8% this year compared to a gain of just 0.42% for the S&P 500.
First Trust Indxx NextG ETF (NXTG)
Expense ratio: 0.70%
The First Trust Indxx NextG ETF was once a smartphone ETF. Nine months ago, First Trust threw in the towel on that concept and converted the smartphone fund into a 5G ETF. The difference has been meaningful and NXTG now has north of $315 million in assets under management.
Although they are both 5G ETFs, investors should not expect similar performances from FIVG and NXTG. While the First Trust fund has more holdings, its reach isn’t as deep. It relies heavily on chip and computer services stocks to drive performance.
Another marquee difference between the two dedicated 5G ETFs — and an important one — is the fee. NXTG charges 0.70% per year, or 40 basis points more than the rival FIVG. For long-term investors, that’s a trait that cannot be overlooked.
VanEck Vectors Semiconductor ETF (SMH)
Expense ratio: 0.35%
Some semiconductor makers, including Qualcomm (NASDAQ:QCOM), have significant 5G exposure, putting the spotlight on chip funds such as the VanEck Vectors Semiconductor ETF.
Looking at the recent uptick in demand for Taiwan Semiconductor (NYSE:TSM) services, it’s evident that 5G is a legitimate catalyst for some chipmakers. Taiwan Semiconductor is SMH’s largest holding at a weight of 11.34%. TSM has been on a tear of late and is now one of the largest companies in the world by market capitalization.
IHS Markit confirms that 5G is meaningful for semiconductor makers. “5G’s impact will spread far beyond the confines of the tech industry, impacting every aspect of society and driving new economic activity that will spur rising demand for microchips,” according to the research firm.
Global X Internet of Things ETF (SNSR)
Expense ratio: 0.68%
The Internet of Things (IoT), like 5G, is a standalone theme. But due to the intersection between the two, the latter brings opportunity for the former, which is potentially rewarding for the Global X Internet of Things ETF (NASDAQ:SNSR). SNSR, the first ETF dedicated to the IoT space, tracks the Indxx Global Internet of Things Thematic Index.
One of the primary reasons that 5G and IoT belong in the same conversation is that both themes revolve around enhanced connectivity. That’s how they play off each other and that’s why SNSR is a practical, if not under-appreciated, 5G ETF.
IoT vendors “are working closely with manufacturing enterprises to provide more secure solutions tailored to their clients’ operations and digital transformation strategy,” according to KPMG. With the help of 5G networks, IoT platforms will be able to connect solutions and sensors to monitor entire processes.”
SNSR holds 50 stocks, over 41% of which are semiconductor names, another trait confirming its potency as a 5G ETF.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
Expense ratio: 0.60%
There can’t be 5G without 5G infrastructure. Many ETFs aren’t adequately inclusive of the real estate names dominating this infrastructure. For that matter, many traditional real estate funds sorely lack 5G exposure. Enter the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF.
SRVR is a coming off a year in which it obliterated standard real estate ETFs. It’s off to a strong start in 2020, outpacing the widely-followed MSCI US Investable Market Real Estate 25/50 Index by 120 basis points.
SRVR gives potential investors exposure to the cloud, 5G, and edge computing infrastructures build out without exposure to traditional semi-conductor, software, and hardware companies,” according to Pacer President Sean O’Hara.
SRVR isn’t just a run-of-the-mill cap-weighted fund. It screens components based on property, revenue, and tenant type. The real estate companies in SRVR count firms such as AT&T (NYSE:T) and Verizon as their tenants.
There’s more to the SRVR story. In addition to being a realistic 5G ETF, the fund touches another booming theme: cloud computing. All those data centers that are powered by high-flying semiconductor makers require space, and lots of it. Rising demand for data consumption and cloud storage are two of the most pivotal factors seen driving members of SRVR’s underlying index.
SPDR S&P Telecom ETF (XTL)
Expense ratio: 0.35%
The SPDR S&P Telecom ETF is one of the last remaining traditional telecom ETFs, but as an equal-weight fund, it’s not excessively exposed to AT&T and Verizon.
XTL’s underlying index provides exposure to “alternative carriers, communications equipment, integrated telecommunication services, and wireless telecommunication,” according to State Street.
XTL lacks the 5G glamour associated with some of the other funds mentioned here, but it’s a decent avenue for conservative investors. Just don’t expect the big returns of FIVG, SNSR or SRVR.
Global X MSCI China Communication Services ETF (CHIC)
Expense ratio: 0.65%
This list wouldn’t be complete without some mention of China, because the world’s second-largest economy was one of the swiftest deployers of 5G last year. It is also sure to wind up with one of the most expansive 5G networks. For tactical investors, the Global X MSCI China Communication Services ETF is one of the best avenues for accessing China’s 5G prowess.
China Mobile (NYSE:CHL), China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU) — the first two of which are among CHIC’s holdings — have already been deploying 5G on a broad scale. Their cooperation means investors don’t have to worry about competition adversely affecting these companies.
“The three operators were expecting to operate nearly 130,000 5G base stations by the end of 2019. China Mobile announced plans to install 50,000 5G sites by end-2019, while China Unicom and China Telecom each target about 40,000, according to RCR Wireless.
Here’s another reason to consider CHIC: China is obviously devoted to the 5G cause as it has outspent the U.S. on this front by more than $24 billion.
As of this writing, Todd Shriber did not own any of the aforementioned securities.