One of the highlights of my week is the call that we host for our clients on Monday afternoons. It gives me the opportunity to actually discuss my views on the market and investment strategy beyond what I write in my daily research notes.
After I give my two cents on the market and we discuss a specific topic for the week, we open the call up to a Q and A session which is honestly my favorite part of the call. The questions give me a chance to learn what our clients care about in terms of specific stocks, investment themes, asset class diversification, etc…
I love thematic investing, especially in technology because it tends to generate a lot of buzz. I also love that companies try to tie themselves to the theme even though they are not really remotely close to it, like this:
Long Blockchain Corp. (formerly Long Island Iced Tea Corp.; NASDAQ: LBCC) is an American corporation based in Farmingdale, Long Island, New York. Its wholly owned subsidiary Long Island Brand Beverages, LLC produces ready-to-drink iced tea and lemonade under the “Long Island” brand. The company’s first product was made available in 2011.
In 2017 the corporation rebranded as Long Blockchain Corp. as part of a corporate shift towards “exploration of and investment in opportunities that leverage the benefits of blockchain technology” and reported they were exploring blockchain related acquisitions.
With any emerging theme, there are going to be winners and there are going to be losers. Take the internet, for every amazon.com there were multiple pets.com’s along the way. This presents an opportunity for investors to take advantage of emerging themes not only by identifying the potential winners but also by betting against the likely losers.
One theme that has come up a lot recently on our client calls has been “how do I invest in 5G?” According to Qualcomm, 5G is the 5th generation mobile network. It will take a much larger role than previous generations. 5G will elevate the mobile network to not only interconnect people, but also interconnect and control machines, objects, and devices. It will deliver new levels of performance and efficiency that will empower new user experiences and connect new industries. 5G will deliver multi-Gbps peak rates, ultra-low latency, massive capacity, and more uniform user experience. In general, 5G use cases can be broadly categorized into three main types of connected services:
- Enhanced Mobile Broadband: 5G will not only make our smartphones better, but it will also usher in new immersive experiences, such as VR and AR, with faster, more uniform data rates, lower latency, and cost-per-bit.
- Mission-Critical communications: 5G will enable new services that can transform industries with ultra-reliable/available, low latency links—such as remote control of critical infrastructure, vehicles, and medical procedures.
- Massive Internet of Things: 5G will seamlessly connect a massive number of embedded sensors in virtually everything through the ability to scale down in data rates, power and mobility to provide extremely lean/low-cost solutions.
- A defining capability of 5G is also the design for forward compatibility—the ability to flexibly support future services that are unknown today.
I am not an engineer so let’s assume that what Qualcomm has to say is correct. The question still remains, how do we invest in this theme. Who are the players? Who could be the winners? Who could be the losers?
Thankfully, anytime a theme becomes popular and begins to gain traction, someone will create an ETF to track it and allow investors to gain exposure to it. In the case of 5G, the team at Defiance ETFs has given us the Defiance Next Gen Connectivity ETF (FIVG). We can see in the chart below, FIVG is a relatively new fund (we don’t rate it yet at Chaikin Analytics) that has been fairly volatile since its launch in March.
Even though we don’t rate the fund, we can still begin to analyse the holdings to find the names that are currently attractive based on our 20-factor model. I pulled the holdings from the fund’s site and loaded them into Chaikin Analytics. Currently, there are 15 stocks which are holdings of FIVG that have Very Bullish or Bullish Ratings and there are eight stocks with Very Bearish or Bearish ratings. We will defer to Defiance and assume that all of the stocks in the fund are leveraged to 5G in some way.
I personally do not have a strong view on 5G at this time. I am most intrigued by the Internet of Things element and do believe that we are going to live in a world where everything is connected. It will be amazing when we are in our cars and we are a mile from a supermarket and we receive a text message from our refrigerators to let us know that we are low on milk.
For now, investors who are interested in investing the 5G theme can start by looking at the 15 names in FIVG that are most attractive based on a combination of fundamental and technical factors.
Drop us a comment if you have another way that you are investing in this theme!