Digital Infrastructure ETF Monthly Report | January

5G ETF Key Takeaways

  • Digital Infrastructure and Connectivity companies, along with the rest of the equity market, extended gains to close out 2023 as the 5G ETF index gained 9.74% in December. From an advance/decline perspective, it was a strong month all around as 50 names saw gains while 12 lost ground during the month.
  • Digital Connectivity and Digital Processing led sectors again in December, combining to contribute to roughly 58% of period returns.
  • The list of top ten contributors to performance in November was populated almost exclusively with Processing and Connectivity names, although Digital Solutions & IP names Bandwidth (BAND-US) [31.79%] and (WIX) [21.20%] managed to fill in two of those spots.
  • Other gainers this month included Maxlinear (MXL-US) which traded up 26.91%.
  • Data Centers were the only lagging segment. Detractors from performance were scarce but Data Center name GDS Holdings (GDS-US) fell -11.02% despite the launch of new facility in Hong Kong as overall Chinese economic pressure overshadowed the company’s announcement.

Source of all performance data: Tematica Research / Bloomberg. Data as of 31.12.2023. Please note that all performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

Macro Outlook

The main driver of this strategy is the Virtuous Circle of capacity creating opportunity and opportunity, once seized, prompting the need for more capacity. As thematic researchers, we break the economy into three components: consumers, corporations, and public policy. When we see consumers and corporations pulling in the same direction, we know we have a solid investing theme. When public policy joins them, setting performance thresholds or providing development incentives such as public works projects, the momentum of all three creates powerful thematic tailwinds, precisely what we see for digital infrastructure development.

The promise of AI only serves to supercharge the momentum of that circle in addition to the continued development of AR/VR, autonomous vehicles, 5G densification, and expanded adoption of industrial IoT to name a few other technologies. Once again ahead of the pack, Nvidia (NVDA) is vocalizing that the demands AI and deep learning systems are putting on networks suggest they are gobbling up network capacity, a positive for DIGI’s strategy. While much has been discussed about 5G, the GSM Association sees cellular and fiber traffic rising sixfold over the next several years as the global 5G customer base grows to 25% by 2025 and 55% by 2030 from around 15% today. Underlying that forecast is the 3-4x average data usage with a 5G smartphone compared to a 4G device.

These and other announcements keep us optimistic that while we are going through some economic uncertainty, we remain excited about funding beginning to flow for promised infrastructure spending. That legislation and other bills will spur more demand for bandwidth, processing and storage and reinforce the Virtuous Circle. This focus on the development of a nation’s digital infrastructure as vital to its future competitiveness is evident in many countries around the world, and as we look forward to emerging technologies, it will only become more critical.

5G ETF Performance Table
As of 31.12.2023

Digital Infrastructure and Connectivity UCITS ETF 9.68%17.12%8.26%24.99%24.99%-14.24%2.46%16.06%
Tematica BITA Digital Infrastructure and Connectivity Index9.74%17.58%8.84%25.91%25.91%-13.14%4.46%18.69%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/12/2023.

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs and ETCs your capital is at risk.

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