A new wave of innovation, enhanced user experience and next era of connectivity will be unleashed in the form of 5G, the fifth generation of mobile network. The shift to 5G is poised to redefine a broad range of products, services and industries and fuel economic growth.
Here’s a closer look at the potential of 5G, and the ways to invest in it.
5G is more than just speed. It will allow immediate response by lowering latency and enable a smoother user experience. The International Telecommunication Union (ITU) has set 2020 as the target year for creating the fifth generation of mobile communication (5G). As per the IMT-2020 requirements, 5G is expected to deliver maximum data transfer rate of up to 20 Gbit/s along with the ability to connect up to a million Internet objects (IoT devices) grouped at one square kilometer allowing not more than one microsecond of latency.
While ITU’s vision is ambitious, work has begun. Over the past few years, telecommunication companies have been engaged in developing and trying out 5G networks in certain markets. In addition, companies, regulatory bodies, and development organizations are working together to set global standards for 5G.
However, the investments and initiatives aren’t limited to corporates. Countries such as China, Japan, South Korea and the U.S. have allocated huge investments for 5G’s rapid buildup. Comparing the spending by nations, a Deloitte report highlights that “since 2015, China outspent the U.S. by $24 billion in wireless communications infrastructure and built 350,000 new sites, while the US built fewer than 30,000. China’s five-year economic plan specifies a further $400 billion in 5G-related investment.”
Although 5G’s full scale commercial availability is yet to happen, pilot projects and access in select areas has begun. Ericsson’s June Mobility report projects that by the end of 2024, 5G subscriptions will reach 1.9 billion, with 35% of traffic will be carried by 5G networks and up to 65% of the global population could be covered by the technology.
The arrival of 5G will catalyze advancement in emergent technologies such as the Internet of Things (IoT), artificial intelligence, drone technology, digital medicine, robotics, augmented reality, quantum computing, intelligent transport systems, and smart utility grids, among other areas.
A study by IHS indicates that its full economic effect will be seen across the globe by 2035, supporting a wide range of industries and potentially producing up to $12 trillion worth of goods and services. It further revealed that 5G value chain could alone generate up to $3.5 trillion in overall aggregate revenue and support 22 million jobs in 2035.
Given its potential advantages, a survey by Gartner on 5G use case and adoption revealed that two-thirds of organizations have plans to deploy 5G by 2020 primarily led by IoT as a use case. Further, the global 5G market is expected to reach $277 billion by 2025 at a CAGR of 111% during 2019-2025.
Investing in 5G technology through an exchange traded funds is a simple and convenient. Launched in April 2019, Defiance 5G ETF (FIVG) is the newest ETF within this space. The Defiance 5G ETF tracks the BlueStar Global 5G Communications Index which is comprises of approximately 60 globally-listed stocks across all market capitalizations and are engaged in the research & development, commercialization of systems and materials used in 5G communications or are otherwise instrumental in the rollout of 5G networks.
The top ten stock holdings are:
- Skyworks Solutions
- CommScope Holding
- Ubiquiti Networks
- Intelsat SA
The top five stocks add up to 25.56% while the top ten stocks hold 43.59% of the portfolio. The fund has an expense ratio of 0.30% and $80.79 million as assets under management.
The next is the First Trust Indxx NextG ETF (NXTG). Originally launched in 2011 as the First Trust Nasdaq Smartphone Index Fund (FONE), the ETF underwent change in its investment objective, fund name and ticker in May 2019.
The First Trust Indexx NextG ETF now tracks the Indxx 5G & NextG Thematic Index which is composed of around 100 stocks (currently 97) that are at the core of the research and development of the new 5G cellular technology and next generation technologies as they emerge. The top ten are:
- Keysight Technologies
- SBA Communications Corp
- Viavi Solutions
- Ciena Corp
- CoreSite Realty
- American Tower
They add up to 21.59%. The ETF has $120.99 million as assets under management, and an expense ratio of 0.70%.
In addition to the above two ETFs, investors can consider the Global X Internet of Things ETF (SNSR) which has a mandate to invest in companies that stand to potentially benefit from the broader adoption of the Internet of Things (IoT). It is widely believed that 5G is the foundation for realizing the full potential of IoT and thus this ETF offers an opportunity to benefit from the spur in IoT enabled by 5G.