The Best 5G ETFs
New investors often believe you need to own risky and unproven companies to benefit from the “next big thing” in tech. That’s simply not true — often the technology that will have the biggest future impact is right in front of you. In fact, a trend that will shape technology for the next decade might be in your hands right now!
That’s right! When it comes to the next technological breakthrough, it doesn’t get any bigger than the fifth generation of mobile communication. Better known as 5G, the next step in wireless connectivity promises speeds as much as 100 times greater than its predecessor. 5G’s immediate impacts are it will allow lightning-fast downloads and significantly improve the mobile gaming experience.
However, if you think the benefits of 5G technology are limited to faster streaming of HD videos, think again. 5G technology paves the way for what’s known as the Fourth Industrial Revolution — the Internet of Things (IoT)– complete with self-driving vehicles and AI-powered robots, will depend upon the ability for machines to process data and execute commands with lightning-fast speed. Without the critical 5G networks, this technology simply cannot exist.
Despite the nonstop rotation of commercials boldly proclaiming 5G has arrived, we’re still in the beginning stages of adoption and scratching the surface of its potential. Smart investors can still potentially position themselves for decades of investing success.
The Five Best 5G ETFs for 2021
However, you don’t have to own a single stock to take advantage of the rise of 5G, that’s because several exchange-traded funds (ETFs) have been built to give investors exposure to this space.
ETFs own a basket of companies but are easily bought, traded, and have tickers just like stocks. The advantage of ETFs is each will provide diversification, which reduces the volatility and risk of own just a single (or handful) of stocks.
Below, we’ve identified five of the best 5G ETFs investors can buy to quickly get exposure to this space. And after you’ve reviewed this list of ETFs, make sure to read on below where we’ll have more information on how to can start investing!
- Global X Internet of Things ETF (Nasdaq: SNSR)
- First Trust IndXX NextG ETF (Nasdaq: NXTG)
- Pacer Benchmark Data and Infrastructure ETF (NYSE: SRVR)
- iShares U.S. Telecommunications ETF (Bats: IYZ)
- Defiance Next Gen Connectivity ETF (NYSE: FIVG)
Global X Internet of Things ETF (Nasdaq: SNSR)
One misunderstanding of 5G is you must directly invest in mobile telephone providers. The reality is that 5G will lead to increased adoption of the Internet of Things (IoT) ecosystem and many companies will benefit.
Notable winners from IoT adoption include chipmakers that produce the 5G-capable sensors and processors, suppliers of fiber-optics and networking equipment, and consumer-facing brands whose products will improve from IoT-functionality.
Global X’s IoT ETF focuses on these companies with the top-10 holdings ranging from chipmakers like STMicroelectronics (NYSE: STM) and Skyworks Solutions (Nasdaq: SWKS) to consumer brands like Garmin (Nasdaq: GRMN), DexCom (Nasdaq: DXCM), and ADT (NYSE: ADT).
The ETF is diversified, with a portfolio of approximately 50 companies and the top-10 holdings accounting for nearly half of the total position. Investors should note the expense ratio of 0.68% per year is high when compared to index-tracking ETFs and, with a beta of 1.25, this ETF is more volatile than the overall market.
First Trust IndXX NextG ETF (Nasdaq: NXTG)
The First Trust IndXX Next G ETF is one of the most direct ways to gain exposure to 5G, as it tracks the rules-based Indxx 5G & NextG Thematic Index. The index is 80% comprised of the largest suppliers of 5G infrastructure and hardware with the remaining 20% focused on mobile service providers that enable 5G connectivity.
Chipmakers are heavily represented in the ETF as semiconductors represent approximately 30% of the total portfolio.
For those desiring more diversity, the First Trust IndXX Next G ETF provides the most geographical variance with only 40% of the companies headquartered in the United States.
Additionally, the First Trust IndXX Next G ETF utilizes an equally weighted approach, holding 100 of the largest companies in its universe and rebalancing twice yearly to ensure one company will never dominate the portfolio.
A theme with 5G ETFs – and other thematic ETFs – is they tend to have higher expenses than many of the ETFs that track more-widely followed indices like the S&P 500, and at 0.70%, the First Trust IndXX ETF is no different than many on this list.
Pacer Benchmark Data and Infrastructure ETF (NYSE: SRVR)
For those looking to take advantage of the growth of 5G but are also looking for income, check out the Pacer Benchmark Data and Infrastructure ETF. This ETF is comprised of real estate investment trusts, or REITS, in the technology and data infrastructure sector.
Its two largest holdings are cellphone tower REITs Crown Castle International (NYSE: CCI)and American Tower Corporation (NYSE: AMT), which together are approximately 30% of the total portfolio. Beyond tower companies, the fund also contains data centers with exposure to cloud computing trends and even advertising REITs.
The dividend yield of this ETF might look average at 1.75%, but REITs must generate at least 75% of gross income from real estate and payout 90% of income as dividends. This ETF’s dividend will continue to grow as demand for 5G connectivity requires more cell phone towers. And make no mistake, this is happening.
According to global research firm Gartner, spending on 5G network infrastructure is expected to reach $8.1 billion this year, an increase of 96% from the prior year. As the 5G rollout will last throughout the decade, growth rates should remain elevated for years to come.
Investors should note the expense ratio of 0.60% and the fact this is a non-diversified ETF as more than 75% of its total portfolio are in its top-10 holdings.
iShares U.S. Telecommunications ETF (Bats: IYZ)
Of course, you can’t discuss 5G investments without including the major network providers. If you’re looking for a straightforward way to benefit from 5G traffic, the iShares U.S. Telecommunications ETF is for you.
The ETF focuses on the mobile telecom providers which will benefit from increased traffic from 5G applications. Because of their significant holdings in high-yielding telecom providers, this ETF provides investors with an above-average dividend yield, now above 2.7%.
The risk is the ETF isn’t diversified as the top 10 holdings account for 75% of total assets. Verizon (Nasdaq: VZ) and AT&T (NYSE: T) alone are greater than 40% of the ETF’s total value. These large conglomerates have significant businesses outside of 5G and not all, like cable television, are in growth industries.
The iShares U.S. Telecommunications ETF’s annual expense ratio is lower than the other ETFs on this list at 0.42%. While we’ve included this ETF on our list of best 5G ETFs in 2021 because it may better suit more risk-averse investors, if you’re looking for a 5G ETF that takes advantage of broader opportunities, you’ll want to first look to other names on the list.
Defiance Next Gen Connectivity ETF (NYSE: FIVG)
Finally, we have the Defiance Next Gen Connectivity ETF, which bills itself as the first 5G ETF. This ETF has assets under management of just under a billion dollars, making it one of the larger ETFs on this list.
Stocks inside the ETF include Qualcomm (Nasdaq: QCOM), Analog Devices (Nasdaq: ADI), Xilinx (Nasdaq: XLNX), Nokia (NYSE: NOK), and Ericsson (Nasdaq: ERIC). Overall, the fund’s focus is on 5G infrastructure and chipmakers. It reviews index components semi-annually, and weights are determined by a market capitalization weighting strategy.
The fund’s expense ratio of .30% is lower than most other 5G ETFs, so investors looking to save on fund expenses may want to begin their ETF search with the Defiance Next Gen Connectivity ETF.
5G Trends to Watch in 2021
If you’re looking at the 5G space, keep in mind the following trends in 2021.
- 5G Smartphones: Smartphones have long been a saturated market. Yet, 5G is providing a compelling catalyst across the smartphone industry. 5G smartphones sales are expected to grow 153% in 2021, reaching 538 million units shipped.
- 5G Equipment: With huge growth in 5G smartphones, the buildout of infrastructure to support them continues. 5G infrastructure is projected to grow at a 48% compounded rate between 2020 and 2024.
- 5G Licensing: While a lot of 5G revenues will accrue to equipment and smartphone-makers in 2021, don’t forget the licensing angle. Companies like Qualcomm and CEVA are seeing strong growth to 5G licensing revenues.
ETF Terms to Know
If you’ve been a long-time investor in the stock market, ETFs can still contain terms that aren’t as common when buying individual stocks. Below you’ll find some terms you may come upon when researching 5G ETFs.
The issuer is the company that’s built the ETF. One note is that issuers will close ETFs if they prove unprofitable, so evaluating the health of issuers and ETFs can be of value. If a fund has healthy assets under management (AUM), it’s less likely to close.
If you own an ETF that closes, it will liquidate back to cash and return that cash to shareholders. ETF closures are generally rare. For example, Vanguard – which issues the Vanguard Communication Services ETF – has never closed an ETF.
NAV stands for net asset value. As ETFs trade freely on exchanges similar to stocks, they have a share price that can slightly vary from the underlying holdings. At this point, the ETF is trading at either a premium or discount to its net asset value.
Generally, if NAVs begin to diverge from the share price, any noticeable difference won’t last long.
Each ETF will have a prospectus that lays out its risks, expense fees, and objectives. Generally, you can search for each ETF and find websites from their issuers that contain their specific holdings and recent performance.
How to Buy 5G ETFs
If you’re new to ETF investing, you’ll need to know where to start.
Fortunately, with the best brokers now offering fractional shares, free trading, and no account minimums, it’s never been a better time for investors to get started.
I typically recommend Robinhood to newer investors because it’s easy to set up and includes all of the features I just mentioned. However, you’re more than welcome to choose your own as well.
Learn More: Read our full Robinhood Review.
Billions of dollars have gone into 5G development, and dozens of companies are competing for market share. Now is the time to start investing in the technology of our future.
Hopefully, this article can get you started!