What 5G means for investors

 

 

The diverse range of 5G applications will affect many aspects of how we communicate in the future. But what does this mean for today’s investors? 

The COVID-19 pandemic and social disconnect have triggered a renewed urgency for technology adoption, a trend that continue well beyond the pandemic. In response to the constraints imposed by the pandemic, companies in an array sectors have accelerated their digital transformation efforts, especially as regards connectivity. It is impossible not to mention 5G as one of the technologies that has stood out over the past year. Find out what exactly this innovation is and what it means for investors.

 

What is 5G? 

 

5G is the fifth-generation mobile network designed to connect virtually everyone and everything, including machines, objects and devices. It offers better performance and is more efficient than previous generations (4G, 3G, etc.). With faster speeds and faster functionalities and data processing, 5G has the potential to transform the productivity and performance of many everyday activities in anything from healthcare and gaming to shopping and education.

 

The creation and deployment of 5G infrastructure has advanced steadily in recent years, thanks to the combined efforts of governments, the telecoms industry and hardware companies. Bolstered by network upgrades and the use of mobile devices, 5G technology is about to transform the world of telecommunications. 

 

5G has a significant market with huge investment potential because it is uniquely positioned to meet the needs of multiple sectors. What benefits does this new development bring? For users, 5G will be one of the support services for innovations such as the Internet of Things (IoT), virtual reality and self-driving vehicles. For investors, meanwhile, 5G will enhance the appeal of investment in technology And given the reaction in some pioneering markets, there is good reason to start adapting your portfolio early.

 

The investment potential of 5G

  

In April 2019, South Korea became the first nation to make 5G technology available. Since then, more than 110 operators in different markets across the globe have launched this most recent generation of mobile connectivity. Initially, investors were cautious. Some chose to wait and see, noting the high investment costs, gaps in coverage, and the shortage of 5G-enabled devices and apps.

 

The decade between 2006 and 2016 became known as "the golden age of the smartphone". New functionalities and speed improvements generated 33% annualised growth in global smartphone shipments during that period.

 

That era is over. Since 2016, smartphone shipments have declined annually due to a maturing market and longer product replacement cycles. Consumers used to upgrade every two years, a number that has now risen to 3.2 years, thanks to increasingly durable, powerful—and more expensive—devices with only incremental technological updates.

 

One recent analysis of pioneering markets suggests that 5G is exceeding expectations and driving sales – everywhere, from Switzerland to South Korea. These two countries, separated by thousands of miles and markedly different cultures, have something in common – a 5G penetration rate above 80%.

 

The launch of new 5G-enabled devices, the marketing effort and the growing demand for larger data packet sizes has helped underpin much of 5G’s early success. Customers seem to understand and accept the value proposition –paying a premium for more data and faster download speeds. As more and more subscribers migrated to 5G, operators reported an increase in average revenue per user of 10–30%.

 

From a cost perspective, prudent management by operators keeps the promise of a dividend alive, despite the significant investment. The expansion of coverage is occurring gradually, with infrastructure shared between operators as a way of splitting the bill for network upgrades – and a way of minimising the pain for investors. 

 

But the biggest impact of 5G is yet to come. While subscriber uptake has been surprisingly positive, the development of more apps specifically for 5G, with augmented and virtual reality, will provide an additional boost. And as coverage and adoption continues to gain ground, so too will the availability of programming tools, which will create a favourable environment for new apps that rely on 5G.

 

These are all reasons why 5G will be part of the consumer future in the short term. And for investors, now is the right time to invest. Find out how. 

 

 

How to benefit from the growth of 5G  

Unlike traditional funds that generally focus on a specific asset class, thematic funds invest in stocks of companies aligned to predetermined themes, such as biotechnology, robotics, or 5G. The equity exposure of thematic funds covers various asset classes and often involves innovative, disruptive and forward-looking technologies.

 

For those looking to grow with technology, here are a few suggested options:

 

• Software. With a thematic fund, you can get exposure to only those companies that develop software. Invesco Dynamic Software ETF is an example. Based on the Intellidex Index, comprising shares of 30 US software companies, it incorporates organisations that meet criteria such as aggressive valuation, profitability and share price. 

 

• Cloud computing. Cloud computing is the delivery of on-demand computing services – including servers, storage, software, databases, networking and analytics. Cloud computing thematic funds can be used to increase portfolio exposure to this growing industry. 

 

• 5G. You can also gain exposure to funds focused exclusively on companies related to the 5G universe. The First Trust IndXX NextG ETF, for example, is designed to track the performance of companies that devote resources to the research, development and application of 5G.

 

Technology stocks generally carry more risk, but also offer the potential of significantly higher growth. This has been the prevailing trend for several years now. Throughout much of the 21st-century bull market, technology stocks have been at the forefront of the upswing, with several cases outperforming the S&P 500 index.

 

There is a fundamental reason why technology stocks tend to be in greater demand from investors. Because they look to the future and promise the delivery of new and exciting products, they are a symbol of growth.

 

While no one can guarantee that technology company stocks will not suffer volatility and slumps, there is potential for growth over the long term. Investors looking to build a diversified portfolio can look to this sector as a viable option. Find out how with Banco Carregosa.  

 

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