Favorable Fundamentals For The 5G ETF

June 20, 2019: 03:21 PM ET

The Defiance 5G Next Gen Connectivity ETF (NYSE: FIVG) debuted in early March as the first exchange traded fund dedicated to the 5G communications theme.

While FIVG has taken some lumps, as have other growth and technology assets, there is no denying there is appetite for 5G funds. FIVG's nearly $87 million in assets under management confirm as much.

FIVG tracks the BlueStar 5G Communications Index and features exposure to eight industries, such as radio access network equipment makers, cloud-core firms, mobile network providers, satellite operators and real estate companies with 5G exposure, among others.

The depth of the new ETF could position it take advantage of multiple areas in which expanding 5G capabilities are expected to be critical and lucrative. Among other opportunities, 5G is expected to be a boon for mobile gaming.

“The gaming industry in particular should benefit from the new opportunities that 5G presents,” said IHS Markit in a recent note. “Because online gaming requires low latency and fast speeds for an optimal user experience, 5G will deliver a vastly improved gaming experience. IHS Markit predicts that revenue from mobile gaming will jump to $83 billion in the next five years. Moreover, cloud gaming will also benefit since 5G removes the need for high-cost hardware.”

5G's applications to mobile gaming intersect with several other fast-growing markets, including cloud computing, augmented and virtual reality and more.

“5G will offer countless opportunities for improved streaming experiences, thanks to faster speeds, lower latency, stronger reliability, higher capacity, and better mobility,” according to IHS Markit. “Given such vast improvements, IHS Markit predicts that there will be 1 billion 5G mobile subscriptions by 2023.”

As is the case with so many thematic ETFs, FIVG is an avenue to tap future growth expectations now. Importantly, there is validity to the fund's underlying thesis, one that is backed by scores of favorable data points. Mobile gaming is just one factor in 5G's favor, but it underscores the vast investment potential of the new communications backbone.

“While streaming video and gaming will improve in the short term because of the faster speeds and lower latency that 5G offers, the long-term possibilities are perhaps even more compelling.” said Markit. “For example, immersive, 'choose your own adventure' experiences and AR stand to benefit a great deal from 5G. Augmented reality in particular should show continued improvement on 5G because AR has the entire smartphone footprint at its disposal. IHS Markit predicts AR revenue to grow to over $3 billion in the next five years.”

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