5G Funds: Where To Invest And How

5G is the latest-generation wireless network technology, providing faster speeds and greater capacity than its predecessor, 4G. With its potential to transform technology and connectivity, 5G has attracted significant global interest, leading to a race among wireless providers to establish the most extensive networks. This has opened up various investment opportunities, particularly in companies involved in 5G infrastructure and access, as well as those indirectly linked to 5G, such as makers of 5G-enabled technology. Investors can choose from a range of options, including individual stocks, mutual funds, exchange-traded funds (ETFs), and real estate investment trusts (REITs). However, it is important to be aware of potential risks and downsides, such as cybersecurity concerns and the length of time required for global implementation.

Invest in mobile carriers

Mobile carriers are a direct way to invest in 5G. The most prominent mobile carriers in the US are T-Mobile (TMUS), Verizon (VZ), and AT&T (T). T-Mobile is the second-largest mobile carrier in the US, having acquired Sprint in 2020 to accelerate its next-gen network deployment. The company has seen growth in its subscriber base, with its value-oriented brand positioning resonating well with customers. Verizon is the largest mobile carrier in the US and has been pursuing sweeping plans for 5G since 2019, including better customer service and new applications for smart cities and factories. AT&T is on the upswing of a turnaround that began in 2020, with a key focus on advancing its 5G network. This strategy has improved its financial position and cash flow and grown its subscriber base.

In addition to the big three, there are other mobile carriers and telecommunication equipment companies that are well-positioned to take advantage of 5G growth. These include Ericsson (ERIC), Nokia (NOK), and Qualcomm (QCOM). Ericsson is a Swedish telecommunication equipment and services company that operates at the forefront of 5G hardware development, participating in field trials and research programs with mobile operators worldwide. Nokia is a Finnish telecommunications equipment and data networking company that has entered advanced testing phases on new 5G radio access products for deployment by mobile operators globally. Qualcomm develops wireless communication technologies and has produced technological innovations in millimeter-wave technology and antenna technology, which are crucial for 5G development.

When investing in mobile carriers, it's important to consider the risks. The rollout of 5G access globally will likely take many years, and there are risks associated with cybersecurity and potential interference with aviation. Additionally, as with all investments, there is the possibility of technological breakthroughs rendering current solutions obsolete and the inherent risk of capital-intensive businesses. However, the good news is that universally accepted standards for 5G infrastructure have been agreed upon by government agencies, reducing the risk of disruption to the rollout.

Invest in 5G-focused ETFs

5G-focused ETFs are a great way to invest in the future of the telecom sector and the ongoing 5G revolution. Here is a detailed look at some of the top 5G-focused ETFs:

Vanguard Communication Services ETF (VOX)

This ETF offers simple exposure to big names in the 5G space. With total assets of nearly $5 billion, it is the largest telecom-related ETF on the market. The fund boasts more than 110 holdings, including service providers such as Verizon Communications (VZ) and AT&T (T), as well as cloud computing and software giants like Alphabet Inc. (GOOG, GOOGL).

Defiance Next Gen Connectivity ETF (FIVG)

The Defiance ETF takes a tactical approach to investing in the firms building tomorrow's 5G infrastructure. With $1.4 billion in assets, this fund focuses on chipmakers like Advanced Micro Devices Inc. (AMD) and Qualcomm Inc. (QCOM), as well as more specialized plays like Keysight Technologies Inc. (KEYS), a manufacturer of electronic testing and measuring equipment for optimizing 5G hardware.

First Trust IndXX NextG ETF (NXTG)

The First Trust IndXX NextG ETF is another infrastructure-focused fund with a dynamic list of components. With approximately $1 billion in assets, this fund targets the ever-evolving business of telecom and the next generation of mobile technology. It includes holdings such as Xilinx Inc. (XLNX), a supplier of programmable logic devices, and international tech firms like India's Tech Mahindra Ltd. (TECHM).

Fidelity MSCI Communication Services Index ETF (FCOM)

This Fidelity communications fund has around $900 million in total assets, with a bias towards large and established stocks. Its top three positions are Meta Platforms Inc. (FB), Alphabet (GOOG, GOOGL), and Walt Disney Co. (DIS), reflecting a focus on content and the connected world.

IShares US Telecommunications ETF (IYZ)

The iShares US Telecommunications ETF is a dedicated telecom fund valued at about $400 million. It cuts out Big Tech leaders and instead focuses on actual telecom service providers, with roughly 35% of the fund in big names like Comcast Corp. (CMCSA), Verizon (VZ), and AT&T (T).

Global X Internet of Things ETF (SNSR)

The Global X Internet of Things ETF is a secondary play on the 5G revolution, investing in the future of connected electronics beyond smartphones and tablets. With assets of roughly $500 million, this fund facilitates the connected future with holdings such as wireless technology chipmaker STMicroelectronics NV (STM) and healthcare sensor firm Dexcom Inc. (DXCM).

These 5G-focused ETFs provide investors with a diversified approach to capturing the growth and innovation driven by the ongoing rollout of 5G technology.

Invest in individual stocks of internet providers

5G technology is the latest iteration of wireless technology, offering faster speeds and greater capacity than its predecessor, 4G. With the ongoing rollout of 5G, investors are keen to capitalise on this development. One way to do this is by investing in the individual stocks of internet providers.

Major wireless networks like Verizon Communications Inc. (VZ) and T-Mobile US Inc. (TMUS) have been working to establish large 5G networks to attract and retain customers seeking higher speeds and the latest technology. These companies have also been partnering with industry leaders to expand their 5G connectivity networks. As a result of its efforts, Verizon's 5G network has more than 200 million users, and its fixed wireless access subscribers have risen to over 3 million. T-Mobile, meanwhile, has a head start thanks to its 2020 purchase of Sprint, giving it a significant radio spectrum edge over competitors.

Broadcom Inc. (AVGO) is another company making inroads into the 5G market. In 2023, it signed a multiyear, multibillion-dollar deal with Apple to produce 5G radio frequency and wireless connectivity components for the iPhone.

American Tower Corp. (AMT) is a real estate investment trust (REIT) that owns cell towers and distributed antenna systems, providing connectivity to buildings and venues. One of its key initiatives is to help cell phone providers transition from 4G to 5G connectivity.

Nvidia (NASDAQ:NVDA) is an AI chip-making powerhouse that has been expanding in 5G through its AI-on-5G platform, which simplifies the deployment of artificial intelligence applications over 5G networks.

When investing in 5G stocks, it's important to think long-term—in years, not months or quarters. While 5G stock prices will fluctuate in the short term, the general trend should be upward over the next decade as the technology continues to roll out and gain traction.

Invest in companies that provide key components of 5G-enabled devices

Investing in companies that provide key components of 5G-enabled devices is a great way to gain exposure to the growth of 5G technology. Here are some things to consider when investing in these companies:

Semiconductor Companies

Semiconductor companies, also known as chipmakers, are crucial to the development of 5G technology. These companies design and manufacture chips that enable 5G connectivity and support high-speed data transfer. Some leading semiconductor companies to consider investing in include:

• Broadcom (NASDAQ:AVGO): Broadcom is a diversified developer of chips and electronic components for phones and networking hardware. The company has a strong presence in the 5G space and has made several acquisitions to expand its product portfolio.
• Qualcomm (NASDAQ:QCOM): Qualcomm is a leader in mobile computing chips, with its products being used in almost every smartphone globally. The company has been instrumental in developing 5G technology and has a wide range of 5G-enabled products.
• Marvell Technology Group (NASDAQ:MRVL): Marvell Technology Group specialises in designing data processing and networking chips that enable high-speed data transfer. The company has made strategic acquisitions to broaden its exposure to 5G and cloud technologies.
• Nvidia (NASDAQ:NVDA): Nvidia is a pioneer in graphics processing units (GPUs), which are increasingly being used in 5G applications such as AI, self-driving cars, and cloud-based video games.

Equipment and Infrastructure Companies

Equipment and infrastructure companies provide the hardware and software necessary for the deployment of 5G networks. This includes companies that manufacture 5G radio transmitters, antennas, and fibre-optic equipment. Some notable equipment and infrastructure companies to consider investing in are:

• Corning: Corning is a legacy glass and ceramics firm that has refocused on technology, including 5G equipment and radio transmitters. The company also builds small cell antennas and software, which are core components of 5G systems.
• Ciena: Ciena is a fibre-optic equipment and network software provider for the telecom industry. The company has profited from the expansion of 5G technology and has developed new capabilities, including software to help telecoms manage their networks.
• Arista Networks (NYSE:ANET): Arista Networks is a leading provider of data centre equipment and management software. The company's products and services will be in high demand as 5G increases the need for data centre infrastructure.

Real Estate Companies

The deployment of 5G networks also requires significant real estate assets, such as towers and cell sites. Real estate investment trusts (REITs) that focus on mobile network infrastructure can provide stable income and growth opportunities. Some top real estate companies to consider are:

• American Tower (NYSE:AMT): American Tower is one of the largest REITs in the mobile network infrastructure space, with over 221,000 properties worldwide. The company leases space on its communication sites to wireless service providers, generating steady rental income.
• Crown Castle (NYSE:CCI): Crown Castle is a leading North American communications infrastructure company, operating over 40,000 cell towers and tens of thousands of miles of fibre. The company has a growing number of 5G small cell tower deployments.
• Digital Realty Trust (NYSE:DLR): Digital Realty Trust is a top developer and acquirer of data centres, with a group of mobile network clients using its services to manage 5G deployments.

Invest in real estate investment trusts (REITs)

Real estate investment trusts (REITs) are companies that own and operate real estate, allowing investors to invest in commercial real estate without the hassle of buying and managing properties themselves. By law, REITs must return a minimum of 90% of their taxable income to investors in the form of shareholder dividends each year, making them an attractive option for those seeking a steady income stream.

When considering investing in REITs to benefit from the rollout of 5G, it is important to understand the limitations of 5G technology. 5G cell reach is shorter than that of previous generations, requiring a more extensive network of cell towers to provide sufficient coverage. This means that REITs focused on cell tower infrastructure stand to benefit significantly from the transition to 5G.

• American Tower (NYSE: AMT): This company owns and operates cell towers in the US, India, and Brazil and is expected to grow its earnings by 20% or more annually over the next five years. It currently offers a dividend yield of 1.7%.
• SBA Communications (NASDAQ: SBA): SBA Communications owns cell towers in North, Central, and South America, with most of its revenue coming from the US market. However, its dividend yield is lower at 0.63%.
• Crown Castle International (NYSE: CCI): Based solely in the US, Crown Castle International leases a portfolio of properties that include cell towers and fibre optic cables. It offers a dividend yield of around 3%.

By investing in these REITs, you can gain exposure to the 5G rollout while benefiting from the steady dividends that REITs are mandated to distribute.

It is worth noting that REITs tend to carry more debt than other companies due to their legal structure. However, investors have generally been comfortable with this because REITs often have long-term leases and contracts that generate consistent cash flow to support their debt obligations and dividend payments.

Frequently asked questions