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Blog Posts — October 31, 2019

Thematic Index Tracks Beneficiaries of 5G Revolution

Preceded by great expectation, the new-generation telecommunications technology known as 5G has finally arrived. 

5G will increase the width and quality of cellular mobile communications exponentially, by multiplying data rate, reducing latency, and increasing system capacity and connectivity. To cite one example, the technology can shorten the time it takes to download a standard, 2-hour-long film from 13 minutes to as little as 4 seconds.1

The magnitude of the transformation in the telecommunications market, related activities and broader economy entailed by the transition to 5G is likely to be unprecedented. Over 3 billion consumersare expected to adopt the new technology, boosting connectivity, digital transactions, the media and the online economy. Industries and governments will adopt cellular telecommunications with the strength that consumers have already done with previous mobile technologies. 

5G has been compared to the printing press or the steam engine for its potential to rewrite the rules of competitive economic advantage.3

IHS Markit estimatedin 2017 that the aggregated investment in research and deployment by companies involved in the 5G rollout in seven pioneering countries will average $200 billion a year between 2020 and 2035. IHS forecasts that the 5G value chain will generate $3.5 trillion in sales in 2035 for industries directly involved in the technology rollout, and support 22 million jobs.   

The numbers shed light on the colossal investment task ahead, as well as the economic potential in the near future, of the 5G switch. 

Identifying companies exposed to 5G

To capture this historic driver of profits and economic upside, STOXX is introducing the STOXX® Global Next Generation Telecoms Index, aimed at investors looking for an accurate and global exposure to the 5G theme. 

This latest member of the STOXX® Thematic Indices uses FactSet’s Revere (RBICS) data for a detailed breakdown of the revenue sources of eligible companies, to identify those most exposed economically to the next-gen telecommunications theme. 

A total of 91 business sectors have been associated to the theme. These include cellular site equipment, networking semiconductors, diversified satellite services, handheld and smartphone software, and data transport carrier services.

The list results in selected companies that provide the infrastructure required for the setup of 5G. They belong to four broad business line groups: 

  • wireline/wireless infrastructure
  • network equipment
  • smartphone manufacturers
  • telecom semiconductors

“Consumer demand for better and faster streaming, the increasing popularity of the so-called Internet of Things, and the evolution of our cities into large, smart and interconnected centers, are placing these companies in the middle of a seismic growth landscape,” said Willem Keogh, Head of ESG, Thematic and Factor Solutions at STOXX.

Liquidity and responsibility filters

Constituents in the STOXX® Developed and Emerging Markets Total Market Index, the parent index universe, are first screened for a minimum trading volume threshold before their revenue stream is examined. A final screen excludes companies that STOXX’s partner Sustainalytics considers to be in breach of the United Nations Global Compact principles or to be involved with controversial weapons.

The index is weighted by the free-float market capitalization of the selected stocks multiplied by their aggregate sales dependence to theme. As of launch, the five largest stocks in the index were Apple Inc., Intel Corp., AT&T Inc., Verizon Communications Inc. and Samsung Electronics Co Ltd.  

Thematic approach to capture long-term trend 

5G technology has emerged as a historical, long-term, structural and disruptive catalyst set to transform the world. It will boost economic activity, propel the entire telecommunications industry and ancillary activities, and dramatically impact manufacturing and services. The duration, depth and span promised by the 5G theme make it a suitable topic to be covered by the STOXX thematic family of indices.

Featured indices 

STOXX® Global Next Generation Telecoms Index  

Deutsche Telekom estimates. 
CCS Insight, 5G forecast, Oct. 16, 2019. 
3,4 IHS Markit, “The 5G Economy: How 5G technology will contribute to the global economy,” January 2017.