Fifth-generation wireless networks (5G) are increasingly becoming part of our lives. In the U.S., mobile network providers AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS), and Verizon (NYSE:VZ)—covered here—are continuing their rollout of 5G services.
Meanwhile, more brands are marketing 5G-compatible smartphones, leading to a much-anticipated consumer upgrade cycle. For instance, Apple (NASDAQ:AAPL) offered its first 5G model, the iPhone 12, in October 2020.
Recent days saw exciting news from the Swedish networking and telecommunications group Ericsson (NASDAQ:ERIC) as it partnered with “PowerLight Technologies, to achieve the first safe, fully wireless-powered 5G base station…a major step toward a goal—for subsequent generations of the solution to transmit kilowatts of energy over longer distances.”
Research by Mohsen Attaran of California State University, Bakersfield, highlights:
“5G’s lightning-fast connection and low-latency are needed for advances in intelligent automation—the Internet of Things (IoT), Artificial Intelligence (AI), driverless cars, digital reality, blockchain and future breakthroughs we haven’t even thought of yet. The advent of 5G is more than just a generational step; it opens a new world of possibilities for every tech industry.”
And according to Grand View Research, between 2021 and 2028, the 5G services market will grow at a compound annual growth rate (CAGR) of more than 45%. As a result, stocks that focus on 5G technologies have been gaining traction in recent months.
Therefore, today we discuss two exchange-traded funds (ETFs) that could be appropriate for buy-and-hold investors.
1. Defiance 5G Next Gen Connectivity ETF
Current Price: $37.21
52-Week Range: $28.09 – $38.95
Dividend Yield: 0.98%
Expense ratio: 0.3% per year
The Defiance 5G Next Gen Connectivity ETF (NYSE:FIVG) invests in companies that are at the forefront of the development or rollout of 5G technologies as well as services. The ETF started trading in April 2019.
FIVG, which has 88 holdings, tracks the BlueStar 5G Communications Index. The top 10 names make up about 38% of net assets of $1.24 billion. Close to 84% of the companies are U.S. based. The rest come from the Netherlands, Sweden, Finland, Canada, Israel, and the UK, among others.
In terms of top sectors, we see radio access network technology (35.73%), followed by cloud-core (15.86%), mobile network operators, (14.66%), network virtualization (10.02%), cell tower and data center REITs (9.39%), and 5G-enabled device chips (5.98%).
In addition to Ericsson, other leading holdings include semiconductor groups Advanced Micro Devices (NASDAQ:AMD), Analog Devices (NASDAQ:ADI), Qualcomm (NASDAQ:QCOM), and NXP Semiconductors (NASDAQ:NXPI). Also included is Keysight Technologies (NYSE:KEYS), which provides electronic measurement instruments and test software.
FIVG returned more than 10.5% in 2021 and 24.1% in the past 12 months. It also saw an all-time high in early September. As another busy earnings season gets under way, we’re likely to see short-term volatility in many of the names in the ETF. A potential decline toward the $35 level would improve the margin of safety for buy-and-hold investors.
2. Global X Internet of Things ETF
Current Price: $36.65
52-Week Range: $25.70 – $38.85
Dividend Yield: 0.32%
Expense Ratio: 0.68% per year
5G is likely to mean significant growth for the Internet of Things (IoT), or the “network of physical objects—'things'—that are embedded with sensors, software and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.”
International Business Machines (NYSE:IBM) says that 5G will help make IoT applications “more effective and efficient.” Our next fund, the Global X Internet of Things ETF (NASDAQ:SNSR), gives access to businesses that will be leading or benefiting from greater adoption of IoT.
SNSR, which tracks the Indxx Global Internet of Things Thematic Index, currently has 47 holdings. The fund was first listed in September 2016.
Information technology stocks lead the roster, with (63.5%). Other important sectors include industrials (82.4%) and health care (7.5%). The top 10 names comprise about half of net assets of $445.1 million.
Semiconductor groups Skyworks Solutions (NASDAQ:SWKS) and STMicroelectronics (NYSE:STM), provider of global positioning systems (GPS) Garmin (NASDAQ:GRMN), medical device company Dexcom (NASDAQ:DXCM), and Taiwan-based industrial computer manufacturer Advantech (TW:2395) lead the names in SNSR.
The fund returned 31% in the past year and 15% so far in 2021. Like our previous fund FIVG, it also hit a record high in early September. Potential long-term investors could consider investing at around $35.