Investing in 5G

January 17, 2020 Mark Fairbairn

You may have heard a lot about 5G mobile networks and it's likely you'll hear about them even more going forward. That's because the implementation of this next generation wireless standard is set to roll out around the world this year.

As the upgrade to the current LTE 4G standard that is predominantly used in Canada, 5G's main benefit is that it can deliver significantly faster data transmission speeds—25 times faster—matching hardwired networks, without the actual wires. Just as WIFI has replaced cables within your home, 5G has the potential to cut the cords more broadly across the network.

The potential to change everything for the better

Fixed Wireless Access (FWA) is one of the first use cases for this new standard. Instead of tethering point A to point B with fiber optic cable to transmit broadband data, with 5G you simply need two transmission towers. Approximately 50% of the global population is still without reliable high-speed internet access and 5G has the potential to massively expand internet access, particularly in rural and developing areas where laying physical connections is difficult or expensive.

5G is not just limited to the data we consume using our handheld devices either. Better enabling self-driving cars is a high profile use case for 5G's connectivity, speed and reliability.

More broadly, higher speeds and lower latency opens up opportunities for a variety of applications. Think industrial improvements, automated farming, drone navigation, factory automation to name a few. It may also change how cloud internet and computing services are provided. In medicine, being able to transmit large amounts of data quickly and reliably may lead to higher quality imaging files, remote treatment advancements and home monitoring innovations.

As consumers, we'll be using more data, more quickly than ever before. As investors, the upgrade is a significant opportunity on several fronts.

The many ways to invest in 5G

There are several ways to invest and gain exposure to 5G developments. The most obvious opportunity is investing in the 5G hardware providers. Companies in this space include Ericsson (Telefonaktiebolaget LM Ericsson) of Sweden, Nokia Corporation of Finland, and Huawei Technologies Co., Ltd. of China. Although we own Ericsson and Nokia in the MDPIM International Equity Index Pool, we don't have any positions in our actively managed funds at this time. Huawei is not publicly traded.

Rather than try to figure out which companies will win and lose in the race to build out 5G infrastructures around the world, we're instead invested in companies focused on developing the technologies which support 5G applications. This includes companies in the semiconductor industry. Qualcomm Incorporated, for example, held in the MDPIM U.S. Equity Pool and the MDPIM Dividend Pool, is a leader in developing handset chip technology.

The Internet of Things, meanwhile, a growing trend for years, will also continue to advance and develop as more and more devices, from your fridge to your car jump online. With this future in mind, we expect to see continued demand for electronics which use the microchips manufactured by companies like Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co., Ltd. Both companies are held in the MDPIM Emerging Markets Pool and the MDPIM International Equity Pool.

Time to upgrade your phone

As 5G becomes more widespread, so too will upgraded devices with 5G capabilities like new phones. The upgrade cycle has the potential to benefit companies like Apple Inc., held in the MDPIM U.S. Equity Pool and the MDPIM Dividend Pool, and Samsung.

Finally, there are the telecommunications companies themselves. These companies will spend a lot of money rolling out the new infrastructure—an estimated $26-billion in Canada alone—but will then benefit from the increase in data usage, total market growth and the lower operating costs of installing and maintaining 5G networks over the long term.

Our active Canadian equity funds include investments in Rogers Communications Inc., Telus Communications and BCE Inc., while in the U.S. the MDPIM U.S. Equity Pool is invested in Verizon Communications Inc. and AT&T Inc.

The MDPIM International Equity Pool, meanwhile, is invested in Orange S.A. (formerly France Télécom S.A.) and BT Group plc (formerly British Telecom) in Western Europe. In Japan we are invested in the Nippon Telegraph and Telecomm Corporation (NTT).

The MDPIM Emerging Markets Equity Pool also provides exposure. In Korea, we are invested in SK Telecom Co., Ltd. (the first company in the world to launch a 5G mobile network). We are invested in China Mobile Limited (already offers 5G access in 50 Chinese cities). In Africa, we are invested in MTN Group Limited (has rolled out FWA broadband across South Africa). In India we are invested in Bharti Airtel Limited and Vodafone Idea Limited. Lastly, we are invested in Russian long-distance and internet provider, Rostelecom.

As 5G boosts connectivity, it should also provide a boost to portfolio performance going forward. For more information about investment opportunities that 5G affords, our investment strategy or MD funds and portfolios, please contact your MD Advisor*.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec).

 

About the Author

Mark Fairbairn

Mark Fairbairn, CFA, B.Eng., is an Assistant Vice President with the Multi-Asset Management team at MD Financial Management. He is responsible for the non-North American equity funds and pools as well as the currency overlay program within the equity funds.

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