Cash in on the digital revolution with these funds.
When it comes to the megatrends that investors should watch in the coming years, the build-out of 5G — or fifth generation technology — telecommunications networks across the globe should be near the top of the list. After all, we’ve already seen breakneck growth in data consumption lately as consumers become even more addicted to their smartphones and everything from doorbells to dishwashers now have the ability to connect to your home Wi-Fi for added digital functionality. Those devices come with a real burden on networks — and as a result, the telecom sector is racing to keep up with this trend and support the digital economy of the future. Rather than pick individual telecom and tech stocks that might cash in on this phenomenon, investors can instead rely on some of the following 5G exchange-traded funds to gain exposure to this long-term trend.
Vanguard Communication Services ETF (ticker: VOX)
One of the largest telecom-related ETFs out there with about $3 billion in total assets under management, this Vanguard fund is among the simplest and most liquid ways to play the 5G revolution by getting exposure to all the big names — from service providers such as Verizon Communications (VZ) and Comcast Corp. (CMCSA) to internet and cloud computing giants such as Google parent Alphabet (GOOG, GOOGL). If you want to broadly play the fact that people are heavily reliant on data services and will only use more bandwidth in the future, VOX is an easy way to get exposure to the dominant names out there across both tech and telecom. The fund comes with a low annual expense ratio of 0.1%, or $10 for every $10,000 invested.
iShares U.S. Telecommunications ETF (IYZ)
Unlike VOX, this iShares telecom fund cuts out the Big Tech leaders like Facebook (FB) that are near the top of VOX and instead goes all-in on the actual service providers. Since America isn’t exactly known for competition in the sector, that means roughly 40% of the fund is in the two biggies of Verizon and AT&T (T). If you’re not afraid of this focused approach, then IYZ is the best way to play actual connectivity providers — and it’s worth noting that thanks to the big yields of Big Telecom stocks like this duo, this iShares fund offers a generous 3% dividend yield as a sweetener. The expense ratio for IYZ is 0.42%.
iShares Global Comm Services ETF (IXP)
Broadening the geographic footprint of IYZ, this global telecom fund looks beyond just Verizon and Alphabet to include Asian internet powerhouse Tencent Holdings (0700.HK) among its top positions. Considering the size of these U.S. megacorporations, the portfolio is still largely populated with domestic stocks, as North American firms represent about 70% of the total portfolio. However, there is a slightly more diversified footprint in this fund for those who don’t want to go “all in” with some of the prior top-heavy funds. This 5G ETF comes with an expense ratio of 0.46%.
First Trust Indxx NextG ETF (NXTG)
First Trust is one of the smaller ETF shops out there, but this fund holds its own with the big guys as it boasts almost $700 million in total assets at present. Thanks to a “next gen” focus on telecom, you’ll find the portfolio biased to hardware manufacturers supplying the parts that are in demand among the Big Telecom stocks upgrading their networks as well as the devices consumers will be using to stay connected. That includes Chinese electronics firm Xiaomi Corp. (1810.HK) as well as chipmaker Qualcomm (QCOM), among others. If you want to play the 5G revolution without buying the typical telecom names, NXTG is a good alternative. The fund comes with an expense ratio of 0.7%.
Defiance Next Gen Connectivity ETF (FIVG)
The ticker says it all, with this unique and tactical ETF from Defiance zeroing in on the firms that are building 5G equipment to power the next generation of internet connectivity. In contrast to other stocks that might focus on software players or telecom providers, FIVG is loaded with stocks like German electronics giant Ericsson (ERIC) and fashionable chipmaker Nvidia corp. (NVDA). Technology stocks, led by these hardware players, make up about 75% of the portfolio. That ensures you’re not investing in sleepy Big Telecom stocks but instead holding a stake in the growth-oriented suppliers of 5G technology. FIVG has an expense ratio of 0.3%.
VanEck Vectors Semiconductor ETF (SMH)
Of course, if you like the tech side of telecoms, then you can cut out the service providers altogether by going right at the semiconductor firms themselves. This nearly $4 billion ETF is a popular vehicle for investors looking to play this corner of the technology market for different reasons and includes 5G suppliers such as Nvidia and Qualcomm among its top holdings. This isn’t as pure a play on this telecom megatrend, but considering how connected that consumer electronics are these days, you may not consider the broad footprint of some chipmakers as too out of step with a 5G strategy anyway. SMH has an expense ratio of 0.35%.
Global X Internet of Things ETF (SNSR)
Speaking of connected electronics, if you want to play the end-user perspective of 5G technology, then this Global X fund may be right up your alley. For those unfamiliar with the buzzphrase, “internet of things” refers to a network of physical objects connected to the web — from TVs and smartwatches to thermostats and doorbells. Top holdings include GPS giant Garmin (GRMN) as well as wireless communications company Skyworks Solutions (SWKS). If you’re most interested in investments that play how people will be plugging in to the new 5G networks, SNSR could be the right fund for you. This ETF has an expense ratio of 0.68%.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
Another interesting investment twist on data-hungry consumers and businesses is the idea of buying into the few physical assets that make up the “cloud” that so many of us use every day. After all, if that movie or app or spreadsheet doesn’t actually get stored on your phone, where is it actually stored? The answer is that most cloud-based data is stored in massive server farms — including those operated by Digital Realty Trust (DLR) and others. SRVR is a play on these data-focused real estate companies as well as telecom tower firms such as Crown Castle International Corp. (CCI). It’s admittedly a narrow niche as only 22 of these real estate related telecom plays are in the ETF, but with $1 billion in assets under management, there’s clearly appeal on Wall Street for this strategy. SRVR has an expense ratio of 0.6%.
Eight 5G ETFs to buy:
— Vanguard Communication Services ETF (VOX)
— iShares U.S. Telecommunications ETF (IYZ)
— iShares Global Comm Services ETF (IXP)
— First Trust Indxx NextG ETF (NXTG)
— Defiance Next Gen Connectivity ETF (FIVG)
— VanEck Vectors Semiconductor ETF (SMH)
— Global X Internet of Things ETF (SNSR)
— Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
