5G is coming. Here's one way to invest in the telecom boom
New York (CNN Business)5G wireless is a reality, and it's gearing up for broad adoption. So it should come as no surprise that there is now a fund solely dedicated to the red hot technology.
TheDefiance Next Gen Connectivity ETF(FIVG)— ticker symbol FIVG — launched earlier this year. The fund is a passive index fund that is based on the BlueStar 5G Communications Index. That means that there aren't managers actively picking stocks, per se.
But BlueStar will use several quantitative and qualitative rules to select which stocks make the index, says Paul Dellaquila, president of Defiance ETFs. So an element of stock picking will exist.
Dellaquila said that BlueStar is looking for telecom equipment companies, service providers and chip manufacturers that all have significant amounts of their businesses tied to 5G.
The top holdings are primarily equipment and semiconductor stocks, such as Skyworks(SWKS), Analog Devices(ADI), Marvell(MRVL), Ericsson(ERIC) and Xilinx(XLNX). But CNN owner AT&T(T) and Verizon(VZ) are also major components of the ETF.
Dellaquila explained to CNN Business that the idea for a 5G fund came about when Standard & Poor's shook up its sector classifications last year.
The old telecom services index, which included AT&T and Verizon, was eliminated and replaced by the communications services index. That index, which AT&T and Verizon now call home, is dominated by media companies likeFacebook(FB), Google and YouTube ownerAlphabet(GOOGL),Disney (DIS)andNetflix(NFLX).
"Many institutional clients didn't like this," Dellaquila said. "They were already overweight the FAANG stocks and wanted a pure telecom fund. There also was an overwhelming interest in 5G."
So the content companies are not in the new 5G ETF — even though many of them will benefit from the wider rollout of faster 5G networks.
Betting on the companies that will supply the 5G network builders
Increased 5G adoption is clearly a bigger deal for the service providers — and the legion of tower, chip and equipment companies that make the infrastructure that is the backbone of these advanced high-speed networks.
The deployment of 5G is helping companies like Ciena, a networking equipment firm that is part of the ETF. Ciena reported a strong 2020 earnings outlook earlier this month, news that sent its stock surging.
Ciena CEO Gary Smith said in an interview with CNN Business that the global rollout of 5G is very important for Ciena, since it sells gear to Verizon, AT&T andT-Mobile(TMUS).
Smith added that companies like Ciena are also benefiting from the 5G boom because many telecom customers have concerns about being too dependent on buying equipment from China. Smith said those fears started even before the US ban on equipment from leading telecom firm Huawei.
The Funds' investment objectives, risks, charges, and expenses must be considered carefully before investing. The QTUM,FIVG, and IBBJprospectuses contain this and other important information about the investment company. Please read it carefully before investing. A hard copy of the prospectus can be requested by calling 833.333.9383.
Investing involves risk. Principal loss is possible. As an ETF, the funds may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. The Funds are not actively managed and would not sell a security due to current or projected under performance unless that security is removed from the Index or is required upon a reconstitution of the Index. A portfolio concentrated in a single industry or country, may be subject to a higher degree of risk. The value of stocks of information technology companies are particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition. The Funds are considered to be non-diversified, so they may invest more of its assets in the securities of a single issuer or a smaller number of issuers. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability. This risk is magnified in emerging markets. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling (833.333.9383). Click here for funds performance: QTUM, FIVG, and IBBJ.
The securities of small-capitalization companies may be more vulnerable to adverse issuer, market, political, or economic developments than securities of large- or mid-capitalization companies. The success of biotechnology companies is highly dependent on the development, procurement and/or marketing of drugs. The values of biotechnology companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of biotechnology companies may be affected significantly by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights. The research and development and other costs associated with developing or procuring new drugs, products or technologies and the related intellectual property rights can be significant, and the results of such research and expenditures are unpredictable and may not necessarily lead to commercially successful products.
The possible applications of quantum computing and 5G technologies are only in the exploration stages, and the possible returns are uncertain and may not be realized in the near future.
Opinions expressed are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
FANG stocks is the acronym for Facebook, Amazon, Netflix and Google (now Alphabet, Inc.).
Dow Jones Industrial Average (DIJ) is a stock market index that shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market.
Alpha is a measure of the active return on an investment compared with a suitable market index.
References to other funds should not be considered an offer to buy or sell these securities.
The Defiance Next Gen Connectivity ETF is the first ETF to emphasize securities whose products and services are predominantly tied to the development of 5G networking and communication technologies. The fund does this by tracking The BlueStar 5G Communications Index. The Fund attempts to invest all, or substantially all, of its assets in the component securities that make up the Index.
Diversification does not ensure a profit nor protect against loss in a declining market.
It is not possible to invest directly in an index.
Commissions may be charged on trades.
The Defiance ETFs are distributed by Foreside Fund Services, LLC.