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David England: There's a lot to love with 5G funds
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Column | Eye on the Market

David England: There's a lot to love with 5G funds

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Before we get into this week’s focus on 5G exchange-traded funds, let’s take a look at the remarkable August returns.

The NASDAQ Composite took top honors with a 9.9% return. The Dow Jones Industrials came in second, up 7.6%, followed by the S&P 500, up 7%. With all things being considered, the Dow Jones had its best August since 1984 while the S&P 500 had its best August since 1986.

David England: Looking at the popular digital field

So, many are asking, where do we go from here? Typically, when the markets are up in August, profit-taking hits in September. Since the markets are up remarkably since the March 24 low, a correction would not be surprising. A word of caution, while experiencing many of the same conditions as in 1999 and 2006 when many are looking for the markets to do one thing, they usually do another. Don’t get caught on the wrong side of the trade.

If a correction does not happen in September, then look for one in October. Remember, the institutions do not buy and hold forever. They trade and lock-in profits when they can. For many funds, their fiscal year ends at the end of October. Year-end bonuses are paid on profits, so you can connect the dots.

This leads me to why I am excited about the current series, introducing new areas of the market that many are unaware of. These featured funds and their leading companies may be in the group of highest performers leading the way once a pullback is over.

Today, I focus on the exciting 5G funds. Let’s identify the more popular 5G exchange-traded funds, trading on our U.S. exchanges.

SNSR-Global X Internet of Things ETF invests in companies that stand to potentially benefit from the broader adoption of the Internet of Things. This includes the development and manufacturing of semiconductors and sensors, integrated products and solutions, and applications serving smart grids, smart homes, connected cars, and the industrial internet.

XLC-Communication Services Select Sector SPDR ETF tracks before expenses the performance of the Communication Services Select Sector Index.

FIVG-Defiance Next Gen Connectivity ETF tracks the total return performance, before fees and expenses, of the Bluestar 5G Communications Index.

NXTG-First Trust Indxx NextG ETF tracks investment results to the price and yield, before fees and expenses, of the Index 5G & NextG Thematic Index.

David England: Looking at what isn't being noticed

XTL-SPDR S&P Telecom ETF tracks before expenses the returns of the S&P Telecom Select Industry Index.

To see the performance of these select ETFs compared to the performance of the U.S. markets ($SPX), I designed a chart beginning on March 24 to real-time.

5G ETFs

The SNSR-Global X Internet of Things ETF took top honors with an impressive 73% return. XLC-Communication Services Select Sector SPDR ETF is up 59%. FIVG-Defiance Next Gen Connectivity ETF is up 57%, followed by NXTG-First Trust Indxx NextG ETF up 50%. XTL-SPDR S&P Telecom ETF is up 43%.

The benchmark index, the U.S. S&P 500 is up more than 58%.

Here are the key points: During this timeframe, all ETFs had impressive, above-average returns. Two funds outperformed the SPX while three underperformed the SPX. It was interesting to see one fund outperformed the SPX by over 15%. The laggard in the group was XTL-SPDR S&P Telecom ETF is up 43%, not too shabby for five months. An interesting point, each fund tracks different indexes in this 5G space. Before investing, take time to learn each index and more importantly, the difference between each index. Never invest in something you do not understand what they do.

Like with the ESG and Crypto-related funds from previous weeks, I am seeing increasing volume within this group meaning more institutions are moving funds into this increasingly popular sector. Let’s watch these groups' performances when profit taking hits the major indexes. The funds that pullback the least would be the best candidates to consider when the next upturn begins.

Next, I will identify the top companies in the top-performing SNSR-Global X Internet of Things ETF. They are as follows: ADT-ADT Inc., DXCM-Dex Com., SKWY-Skyworks Solutions Inc., STM-ST Microelectronics, and GRMN-Garmin Ltd. I am sure readers will be familiar with some of these companies.

To see the performance of these top companies compared to the BLCN, I designed a chart beginning on March 24 to real-time.

SNSR Top Companies

ADT-ADT Inc. took top honors with a nice 189% return. DXCM-Dex Com. was next up 104%, SKWY-Skyworks Solutions Inc. was up 101%, then STM-ST Microelectronics up 74%. The laggard was GRMN-Garmin Ltd. up 66%. The benchmark fund SMSR-the green shaded area was up 73%.

Here are the action points: During this timeframe, four companies outperformed the index SNSR, while one did not. The leader, ADT Inc., ran well over 250% before profit trading hit. Seasoned traders do not buy and hold. Once a security peaks, they take profits off the table then watch for new entry points. This is what is going on now with the top performers in this group.

David England: Is bigger necessarily better?

Finally, take the time to do your due diligence on each fund, which index they track, and its holdings. Spend time to research the balance of the top companies to see if one may be next to run like ADT, DXCM, and SKWY.

Once the companies are identified, set alerts to let you know when one breaks out. Then use the Simple Simon buy system to help with decisions.

In full disclosure, I do not hold any securities listed.

Plan your work, work your plan, and share your harvest!

DAVID O. ENGLAND is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to thetraderseye@gmail.com.

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