First Trust Global Portfolios has introduced the first ETF in Europe specifically to provide exposure to companies aligned to the theme of 5G technology.
Rupert Haddon, Managing Director, Head of Sales at First Trust Global Portfolios.
5G – from Fifth Generation – refers to the latest generation of cellular mobile communications.
Proponents of the technology say that its adoption will provide faster speeds, more functionality, and lower latency, helping, in turn, to foster a digitalized economy, transform countless industries, and enhance people’s quality of life.
The impact of 5G rollout is expected to be felt across many spheres such as smart cars, VR/AR functions, manufacturing, healthcare, and the internet of things.
European investors can now directly access this theme through the First Trust Indxx NextG UCITS ETF which has been created by re-organizing the First Trust Japan AlphaDEX UCITS ETF. The fund is available to trade on London Stock Exchange in US dollars (NXTU LN) and pound sterling (NXTG LN).
The fund replicates the strategy behind the US-listed First Trust Indxx NextG ETF (NXTG US) which was created in March 2019 when First Trust re-organized one of its less-popular thematic funds. The strategy has garnered significant interest from US investors with the fund currently housing around $900 million in assets under management.
Methodology
Both ETFs are linked to the Indxx 5G & NextG Thematic Index, designed and calculated by New York-based Indxx. The index selects its constituents from a universe of global stocks with market capitalizations above $500m and average daily traded values above $2m for developed market companies or $1m for emerging market firms.
The index covers two sub-themes related to 5G technology: Telecommunication Services, which includes companies offering public access to 5G networks by operating mobile cellular and wireless communication networks; and 5G Infrastructure & Hardware, which includes data center REITs, cell tower REITs, 5G network equipment manufacturers, companies conducting network testing and producing validation equipment, and mobile phone manufacturers.
The methodology includes the 100 largest stocks classified to certain FactSet industries that Indxx has determined to be related to the above sub-themes.
As of each semi-annual reconstitution and rebalance, the weight of the Telecommunication Services sub-theme is set to 20%, and the weight of the 5G Infrastructure & Hardware sub-theme is set to 80%.
The index utilizes a modified equal-weight approach whereby constituents within each sub-theme are equally weighted while those with market capitalizations above $2 billion are assigned a weight factor of two.
As of 29 January, around half the index weight was allocated to stocks from the US (39.6%) and Japan (10.1%) with the next largest country exposures being India (7.8%), China (6.8%), and South Korea (5.8%). The largest industry exposures are semiconductors (26.1%), integrated telecommunication services (12.5%), communications equipment (12.1%), specialized REITs (9.9%), and wireless telecommunication services (7.9%).
Rupert Haddon, Managing Director, Head of Sales at First Trust Global Portfolios, commented: “With 5G’s transition now fully underway, tracking an index that provides exposure to companies involved in this next-generation technological innovation and infrastructure will enhance the marketability of the fund. We are seeing increasing demand for and robust performance in our US-domiciled 5G focused ETF. We are delighted to be partnering with market leaders Indxx, pioneers in innovative and custom indexing, in bringing this to the UCITS market.”
Rahul Sen Sharma, Managing Partner at Indxx, added: “5G technology is expected to pave the way for a hyper-connected world and be the backbone of innovation in multiple industries. The rise in remote working and shift to the cloud are also driving the demand for faster communication networks exponentially. Our index effectively helps investors gain exposure to companies enabling this pioneering communication technology. We are very happy to partner with First Trust to introduce this successful investment strategy to European investors. ”
Vaibhav Agarwal, Chief Revenue Officer at Indxx, said: “The high speed and low latency 5G technology will be at the forefront of enabling industrial automation. The new communication standard will play a pivotal role in boosting the implementation of Industry 4.0. The increased demand for integration of modern communication standards across various industries globally makes the 5G industry a promising investment theme. Our Indxx 5G & NextG Thematic Index provides exposure to leading companies committed to the development of 5G cellular technology. The unique methodology employed for the index construction ensures a holistic exposure to the 5G space.”
The fund comes with a total expense ratio of 0.70%.