The 5G investment theme continues building momentum and the First Trust Indxx NextG ETF (NXTG) is one of the ETFs leading that charge.
The First Trust Indxx NextG ETF, formerly First Trust Nasdaq Smartphone Index Fund, seeks investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the Indxx 5G & NextG Thematic Index SM. The Fund will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the Index.
5G is often framed as a 2020 theme, but the reality is, this is a multi-year concept, meaning NXTG could be in the early innings of outperforming other thematic funds. In fact, the longer-ranging case for NXTG is bolstered by 5G’s intersection with a slew of disruptive technologies that are in the early stages of their advancement.
“5G networks are expected to bring faster wireless speeds, reduced latency, and improved capacity for connected devices,” said First Trust in a recent note. “This ecosystem of devices referred to as the Internet of Things or IoT goes far beyond the next generation of smartphones. Autonomous vehicles, wearable electronics, smart home devices, and remote sensors will communicate in nearly real-time over public and private 5G networks.”
Right Place, Right Time
NXTG’s index is designed to track the performance of companies that have devoted, or have committed to devote, material resources to the research, development, and application of fifth-generation (“5G”) and next-generation digital cellular technologies as they emerge.
Increasing the allure of NXTG is that 5G isn’t strictly a U.S. theme. There are significant international implications here, too.
“Investments in 5G infrastructure are also central in fiscal stimulus plans outside the US. In China, infrastructure spending in response to the crisis already appears to be ramping up,” notes First Trust. “China’s $1.4 trillion in spending plans over the next six years include several significant 5G projects. In Europe, the European Commission has proposed a €750 billion infrastructure spending proposal that would also allocate funds for the next generation of wireless network.”
Vital to the NXTG thesis is that the ETF is 80% allocated to 5G infrastructure names, the more lucrative side of this theme.
“In addition to companies directly involved with installing network infrastructure and maintaining data centers, we believe companies that contribute to the value chain of 5G enabled devices will also be key beneficiaries of the coming wave of 5G network development. Demand for digital components, such as semiconductors, antennas, and sensors, is poised to grow rapidly as more 5G consumer and enterprise use cases emerge,” according to First Trust.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.