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.
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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.
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