If you're interested in the telecom services and technology markets, you've probably heard a lot about 5G, the new generation of wireless communication networks.
Choosing the right 5G stocks as the 5G theme develops isn’t easy, but you might not need to choose individual stocks at all. If you want a ready-made 5G portfolio that doesn't require intensive monitoring, investing in one or more 5G exchange-traded funds (ETFs) might be your best option for gaining portfolio exposure to the next generation of wireless networks.
In this guide, we are to talk about 5G ETFs and the ones to buy in 2021.
Where Can I Trade 5G ETFs?
Whether you're investing in 5G ETFs for the long term, or looking to trade in and out more regularly, you’ll find that most brokers will allow you to trade 5G ETFs. Be sure to research the best broker for you.
What is a 5G ETF?
5G, which stands for the "fifth generation" of mobile technology, is the next big standard for broadband cellular networks. Experts predict that 5G networks will eventually provide consumers with data speeds of up to 10 gigabytes per second.
An exchange-traded fund (ETF) is a basket of stocks that trades on the stock market like an ordinary share of stock. Unlike mutual funds, ETFs can be purchased at any time during the trading day. The stocks included in an ETF are generally driven by a theme. For instance, a 5G ETF will hold the stocks of companies that offer 5G services.
Now you know what 5G ETF is, let's look at how to invest in 5G ETFs.
Invest in 5G ETFs in 3 Steps
Open a Trading Account
The first step is to register with an online broker. Pay attention to commissions and keep an eye out for hidden fees such as interest on margins (borrowed money) or withdrawal service fees. Take note of trading restrictions and minimum account balances as well.
Choose 5G ETFs
Your broker's online portal will show a list of available ETFs (including 5G ETFs), and some platforms will allow you to narrow the list to find ETFs from a specific provider or with low fees.
Execute Your Trade
When you've found the ETF you want to buy, you can purchase it from your broker in about the same way you do a stock.
Best 5G ETFs to Buy Now
Here are the top 10 ETFs that focus on 5G:
- First Trust Indxx NextG ETF
- Vanguard Communication Services ETF
- iShares U.S. Telecommunications ETF
- Defiance Next Gen Connectivity ETF
- Global X Internet of Things ETF
- Pacer Benchmark Data and Infrastructure Real Estate ETF
- SPDR S&P Telecom ETF
- VanEck Vectors Semiconductor ETF
- Global X MSCI China Communication Services ETF
- Esoterica NextG Economy ETF
First Trust Indxx NextG ETF
One of the best ways to expand portfolio exposure to next-generation mobility is through First Trust's 5G ETF. The fund invests in stocks of companies with market capitalizations of at least $500 million that are involved in the development and deployment of 5G technology.
With less than $1 billion in assets-under-management (AUM), the First Trust Indxx NextG ETF is not the largest ETF on this list. However, it has been in existence since 2011 and has doubled in value since 2016. It has an annual cost ratio of 0.70 percent, which means that for every $1,000 invested, $7 in fund management fees are charged per year.
Vanguard Communication Services ETF
Vanguard Communication Services ETF is the biggest telecom ETF currently investing in 5G companies. Verizon Communications (NYSE: VZ), Comcast Corporation (NASDAQ: CMCSA), and AT&T are among the biggest 5G assets. Other significant holdings include Facebook (NASDAQ: FB) and Google’s parent company Alphabet (NASDAQ: GOOG). This ETF will provide you with diverse exposure to the 5G market and beyond, thanks to widespread investments in some of the largest US tech companies.
iShares U.S. Telecommunications ETF
The iShares U.S. Telecommunications ETF is a good option if you're looking for investment returns. Its 44 stocks are primarily telecommunications companies. AT&T and Verizon account for 40% of the fund's overall holdings by size, along with a portfolio of stocks from large technology firms (like Cisco) that offer mobile network infrastructure and software management resources.
Defiance Next Gen Connectivity ETF
The Connectivity ETF invests in companies that develop technologies allowing 5G providers to deliver services. Hardware manufacturers account for approximately 75% of the fund's AUM, distinguishing it from rivals such as the Vanguard Communication Services ETF that focuses mostly on software manufacturers. Many of the assets overlap with those of the First Trust Indxx NextG ETF.
Global X Internet of Things ETF
The phrase "internet of things" refers to a network of devices that are linked together through the internet, such as an Amazon’s Alexa that you can control through your phone. Consider this ETF if you want to invest in companies that make goods that incorporate 5G technology. The majority of the shares are in companies that manufacture GPS devices and wireless communication solutions.
Expert Tip on Investing in 5G ETFs“ Investing in ETFs can be a simple and convenient way to benefit from the advancement of 5G technology. ETFs have built-in diversification and are less volatile in price than individual stocks. But keep in mind that 5G is a growing industry. As a result, expect some uncertainty as the 5G infrastructure is introduced and customer and business adoption grows. ”- Alice Wanjiku
Why trade 5G ETFs?
As 5G expands, including a 5G ETF in your portfolio offers a rare combination of diversification and exposure to developing technology. If you plan to invest in ETFs, you should first understand the cost ratio associated with each fund. For the lowest expense ratio, consider the Vanguard Communication Services ETF, which has a low expense ratio of 0.10 percent.
Frequently Asked Questions
We saw rapid growth in data usage during the pandemic as consumers became ever more addicted to their phones. 5G ETFs should continue to see significant growth in the coming years.
As a beginner, it's important to gain the necessary skills before dipping your toes in the ETFs pool. Read as much as you can about investing in general, then reread this guide to choosing the best 5G ETFs for your portfolio.
ETFs that hold dividend-paying stocks collect those dividends and either pay them out to the ETF holders (that’s you) or reinvest them within the ETF. Either way, you don’t lose out on the dividends.
Since the pros have decided on the constituents of the ETFs you buy, you can just sit back and watch them appreciate. Hopefully. But you might be more active, for example by timing the purchase and sale of your ETF holdings in line with market troughs and peaks.
Some claim that you can’t time the markets, and some think that you can. With hindsight, there are always good and bad times to have bought or sold stocks or ETFs, but in the long run, it’s usually “time in the market” rather than “timing the market” that counts.
Position traders and long-term “buy and hold” investors can benefit most from investing in 5G ETFs. 5G is growing, and it could take some years to reach a peak.