New digital infrastructure ETF provides the ‘picks and shovels’ of the information age

Oct 13th, 2020 | By | Category: Equities

An ETF providing exposure to companies that provide the backbone of the digital economy has made its debut in London.

HANetf digital infrastructure ETF

The ETF provides exposure to companies that are at the forefront of the digital infrastructure revolution.

Listed on the London Stock Exchange, the Digital Infrastructure & Connectivity UCITS ETF delivers exposure to companies that are enabling and equipping the digital transformation – the ‘picks and shovels’ of the information age.

The fund, which comes with a fee of 0.69%, has been brought to market by Mauritius-registered financial services outfit Quikro and London-based white-label issuer HANetf.

It trades on the LSE in US dollars (DIGI LN) and pound sterling (PIGI LN) and is also expected to list on Xetra (DIGI GY) and Borsa Italiana (DIGI IM).

The fund’s underlying reference is the Tematica BITA Digital Infrastructure Index which selects its constituents from a universe of stocks listed in developed and selected emerging markets.

The index has been created by Virginia-based thematic research specialist Tematica and Frankfurt-based index calculation agent BITA.

Index methodology

Firms must first have a market capitalization above $100 million, a 90-day average daily trading volume of at least $1m, and a free float of at least 20% to be eligible for consideration.

The universe is then screened for companies related to the digital infrastructure theme. To be selected for inclusion, firms must derive at least 80% of their operating profit (or sales if data on operating profit is not available) from six related sub-sectors: data centers, data networks, digital connectivity, digital transmission, digital processing, and digital services and intellectual property.

The methodology captures firms from across the digital infrastructure value chain. This includes companies such as those managing connective hub centers, developing communication chips for cellular, wifi, and Bluetooth networks, manufacturing routers and related hardware and chips utilized in network switches, providing digital infrastructure service solutions, and conducting research and development into new networking technologies.

Once the relevant companies are identified, the index employs a modified market-cap weighting scheme that assigns weights to each of the six sub-sectors that corresponds to their market capitalization. The individual constituents of these six sub-sectors are then equally weighted. This is subject to an individual security cap of 4% and a cumulative weight cap of 40% for all securities over 4% as of each rebalance date, with excess weights redistributed.

A final adjustment aims to reduce the weight of thinly traded stocks.

The fund has 84 holdings, two-thirds of which by market capitalization come from the United States. Major positions include Advanced Micro Devices, Nvidia, iShares MSCI Taiwan ETF (presumably a proxy for Mediatek or Taiwan Semiconductor), Renesas Electronics, NXP Semiconductors, Acacia Communications, and Shopify.

‘Virtuous digital circle’

Commenting on the launch, Omar ElKheshen, CEO of Quikro, said: “The roll-out of 5G, Cloud, IoT, VR, and other disruptive technologies, in addition to permanent lifestyle changes linked to Covid-19, will continue to accelerate the trend towards further digitisation and virtual communication. With that arises a growing and insatiable need for digital infrastructure to support everyday digital activities and the immense amount of data flowing behind them.  This is a huge opportunity for investors and our new ETF, the Digital Infrastructure and Connectivity UCITS ETF (DIGI), will provide an opportunity to potentially capitalize on this.”

Christopher Versace, Chief Investment Officer of Tematica Research, added: “With almost five billion people connected to the internet today, the demand for continuous access to digital information and communication is growing exponentially. By 2022, new and existing applications are expected to drive mobile data traffic alone to 930 exabytes per year, an 11,300% increase over 2012, which equates to all the movies ever made crossing global mobile networks every 5 minutes. 5G and other disruptive broadband-enabling technologies will foster new rich data applications such as semi-autonomous and autonomous vehicles that will ultimately drive network congestion and require further infrastructure investment buildout. This in turn will fuel development of new applications and data, otherwise known as the virtuous digital circle. The Tematica BITA Digital Infrastructure and Connectivity Index was designed to capture this long-term trend.”

Nik Bienkowski, Co-CEO of HANetf, said: “The Digital Infrastructure and Connectivity UCITS ETF focuses on some of the most exciting and transformational themes in the world today and allows investors to invest in this long term megatrend of exponential growth in traffic using digital infrastructure. We are delighted to have worked with Quikro and Tematica on the development of this exciting new ETF.”

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