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Invest in the 5G future with these tech-friendly funds

invest-in-the-5g-future-with-these-tech-friendly-funds

Although it may take a while to spread its tentacles fully into our lives, make no mistake, the introduction of state-of-the-art 5G mobile network technology is going to be transformative. Maybe, some say, as dramatic as the birth of the internet itself.

Yes, there will be hype and hiccups along the way – and international politics will occasionally disrupt matters (think no further than Chinese 5G specialist Huawei) – but 5G is coming into our lives and, in time, we will embrace it as enthusiastically as we have done the world wide web.

By 2024, it is expected that some 40 per cent of the world’s population will have 5G coverage.

Transformative: Thanks to 5G, consumers will be able to download more content at greater speed – the latest blockbuster film for example

Thanks to 5G, consumers will be able to download more content at greater speed – the latest blockbuster film for example.

Just think about these statistics. Using 3G, it takes more than nine minutes to download a high definition movie (I remember it well). With 4G, it takes just over 30 seconds. But when you get 5G, it will take a second. Yes, a second…the blink of an eye.

Also, with 5G, we will be assured of more reliable connectivity, so in my case no more frustrating half-times at football matches unsuccessfully trying to log on to BBC Sport to catch up on the latest scores elsewhere.

And we will have the opportunity to have more gadgets ultimately controlled by our phone. Everything from smart meters (boo, I hear you say) through to home security sensors and robot mowers that on our command cut our lawn. Yes, welcome to the ‘internet of things’.

Yet 5G’s transformative impact will go way beyond the home. It’ll speed up the march towards widespread industrial automation – artificial intelligence – and one day result in driverless trucks or ‘truck-trains’ going up and down our motorways (at least, they won’t suddenly veer out in front of you as many bored lorry drivers like to do with smiles on their faces).

It will also impact on medicine and healthcare provision.

As Borg Ekholm, chief executive of Swedish telecoms giant Ericsson, recently said: ‘No previous generation of mobile technology has had the potential to drive economic growth in the way that 5G promises.

‘It goes beyond connecting people, to the possibility of making the internet of things and the fourth industrial revolution a reality.’

Powerful words, eh, although they were made not without vested interest. Mr Ekholm is the head of a company at the forefront of building 5G networks – here and worldwide. And for every Mr Ekholm, there is another expert who believes the 5G story is overhyped and will take much longer (a decade or more) to take hold. 

Yet the fact remains that 5G is the future. And for those who want to build long-term wealth, the 5G story is a theme they may want to embrace within their investment portfolio.

AJ Bell’s Russ Mould: ‘A good narrative – and 5G is a good narrative – does not always make for a good investment, especially if you buy at the wrong time’

In time, many listed companies will make big profits from this mobile revolution, which in theory should result in strong relative share price performance and – in some cases – attractive dividend payments. 

‘The new era of hyper-connectivity that is upon us provides investors with a long list of potential stock market winners,’ says Russ Mould, investment director at AJ Bell.

‘These range from 5G network equipment suppliers and their sub-suppliers to mobile network operators, smart device makers, media companies that provide streaming services and video gaming specialists.’ 

But he overlays his enthusiasm for 5G with a big dollop of caution. He adds: ‘A good narrative – and 5G is a good narrative – does not always make for a good investment, especially if you buy at the wrong time.

‘The technology, media and telecoms bubble of 1998 through to early 2000 had some of its origins in expectations for the roll-out of 3G technology.

‘The 3G switch took longer to gain traction than expected, leaving many firms exposed to earnings disappointment. As a result, their share prices collapsed when the tech bubble burst in early 2000. 

‘Investors in the 5G investment ‘story’ need to ensure they are paying a sensible price for any shares and are not just piling in blindly. A long-term view is also required.’ Wise words.

FUNDS THAT INVEST IN 5G FRIENDLY SHARES

In the United States (where else), the first 5G-focused investment fund – FIVG – has been launched to invest in US-listed companies involved in the development and roll-out of 5G networks.

Although the fund is not available to UK investors, its portfolio gives an indication of the breadth of companies with a toe or three in the 5G camp.

It includes mobile network providers, manufacturers of network equipment such as cell towers (that beam 5G signals wirelessly across the landscape using radio waves), antennae and routers, companies specialising in the storage of data, and manufacturers of the chips that in big part make smartphones do all the wonderful things they can do.

Among the fund’s top holdings are familiar corporate brands – Finnish-based Nokia and Ericsson, whose shares are respectively listed on the New York Stock Exchange and Nasdaq.

Both are big 5G players, providing equipment that will help build 5G networks worldwide – alongside other corporate giants such as South Korea-based Samsung and, yes, China’s Huawei.

Other holdings include cellphone tower operator American Tower, semi-conductor maker Qualcomm, 5G technology specialist Xilinx, and mobile service providers AT&T and T-Mobile.

Apple, at some stage expected to launch 5G smartphones, is also part of the FIVG portfolio, as is Amazon, which could be one of the beneficiaries of increased demand from mobile users for films and TV programmes to watch.

Many of the companies making up FIVG are held by investment funds and investment trusts available to UK investors. Most of these funds have a technology or American bent (see box, left).

WHO ARE THE BIG PLAYERS IN THE UK?

For UK investors, the choice of 5G-involved companies listed on the London Stock Exchange is more limited than is available in the United States. Vodafone and BT (owner of mobile network operator EE) are probably the most high profile and obvious choices, having already launched limited 5G services.

AJ Bell’s Mould says both companies will look to boost mobile phone usage on the back of 5G – for example, as customers use their mobiles to view greater video-rich content. Yet, so far, the 5G journey has not been an easy one for either company.

Last year, Vodafone was forced to cut its dividend, in part to divert cash to build its 5G network.

Also, a few days ago, it said Government restrictions on the use of Huawei equipment in the building of the country’s 5G’s network – imposed because of security fears – would result in extra costs. 

These stem from replacing existing Huawei equipment to keep within the new limits – for example, antennae and base stations that transmit data across the country’s 5G network and software and hardware used to process and store data.

BT also said it would be hit with a £500 million bill as a result of complying with the new Government rules. Alternative equipment will have to be bought from the likes of Nokia and Ericsson – and any new competitors that emerge in the near future.

Despite these knockbacks, Jason Hollands, of wealth manager Tilney, still believes the eventual universal roll-out of 5G will provide a ‘boost’ to both BT and Vodafone.

WHICH FUNDS WILL GIVE SPEEDY RETURNS? 

For most investors, the best way to get exposure to 5G is via an investment trust or investment fund with a technology bent.

Investment house Polar Capital has three technology-orientated funds that all have significant 5G exposure – stock market-listed Polar Capital Technology and investment funds Global Technology and Automation & Artificial Intelligence.

Nick Evans, part of Polar Capital’s technology team, describes 5G as ‘an important theme’ although he believes the roll-out of 5G has paused for breath in both China and the United States, in part as a result of trade wars and American concerns over Huawei.

He says beneficiaries will include Apple – when it launches 5G iPhones. He adds: ‘We expect Apple will see a tailwind from these higher priced phones and a shortening of phone replacement cycles.’ But he warns some of this 5G effect has already been captured in the company’s strong share price performance over the past year. He also says the benefit of higher download speeds ‘may’ extend to other companies such as Netflix and Spotify.

Both Apple and Samsung – another big 5G participant – are top 10 holdings in investment trust Polar Capital Technology.

Enthused though Polar Capital is by 5G, Evans says there is a lot of ‘hype’. He add: ‘We certainly consider 5G as a core theme in our three funds. But it is just one of many with strong growth prospects.’

Walter Price, manager of Allianz Technology Trust, has Apple and Samsung among the fund’s top ten holdings. He also believes FTSE 100 digital specialist Aveva could be a long-term winner as 5G enables it to encourage businesses to embrace artificial intelligence and the internet of things. According to Dzmitry Lipski, head of investment research at wealth platform Interactive Investor, other investment trusts with portfolio exposure to 5G include Murray International and North American Income.

Both have key stakes in American telecoms giant Verizon Communications.

Herald also has exposure to 5G through holdings such as Nasdaq-listed Akoustis Technologies. It specialises in acoustic wave technology that ensures mobile smartphones can operate at high speed.

Other UK-listed companies that could do well include 5G equipment testing specialist Spirent Communications, that forms part of the FTSE 250 Index. Mould says Spirent is a potential ‘winner’ although its shares have already risen sharply – some 129 per cent over the past two years alone. Warns Mould: ‘There could be lumps and bumps along the road.’

Other slightly more left-field winners include Centrica (owner of British Gas) and traffic flow manager Tracsis, part of the FTSE AIM All-Share Index. Says Mould: ‘Centrica will be looking to use the internet of things to offer customers smart meter-based monitoring and related services. Leeds-based Tracsis will be able to use 5G to provide remote and automated safety monitoring – on the roads and at big sporting events.’

Keywords Studios, a provider of technical services to video gaming companies, should also do well on the back of an anticipated mobile phone boom in use of video games triggered by 5G. Like Tracsis, it is an AIM stock.

AND THE FINAL WORD…

Steve Marshall is a former senior executive of American Tower Corporation, a company that owns a lot of the infrastructure essential for 5G to work – for example, wireless towers and antennae systems. He is chairman of UK fibre network provider NextGenAccess, a company helping the country get fit for 5G purpose.

He has no doubt that 5G will transform the way consumers live and businesses operate. He sees a future where we will be able to enjoy broadband ‘on steroids’.

When that happens, he says it will truly transform business and bring widespread automation a giant step closer – the driverless trucks already mentioned and even pre-programmed wheelchairs at airports that will enable travellers needing one to be taken off a plane and then transported to the terminal without requiring the assistance of loads of airport staff.

The 5G revolution has just begun. At the very least, think about it in your long-term investment planning. But don’t get too carried away – remember March 2000, the bursting of the first tech bubble.

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