New Issuer Debuts Active 5G ETF

Esoterica’s fund is the first to launch since the market meltdown. 

Today, an ETF newcomer is boldly venturing into a marketplace thrown into turmoil by the recent crash and the spread of COVID-19. Esoterica Capital rolled out the Esoterica NextG Economy ETF (WUGI), an actively managed fund that targets companies involved in fifth-generation digital cellular network technology (5G).

WUGI comes with an expense ratio of 0.75% and lists on Cboe Global Markets, the parent company of ETF.com.  

Fund Approach

The fund is the first ETF to launch since the market crash that played out during the month of March. It focuses on companies that will benefit from the adoption of 5G technology, sorting them into three groups: infrastructure, edge devices and services, according to the prospectus. Edge devices are essentially cellphones and their components.

5G technology is the next phase of cellular technology and will offer greater speed for end users. That has a number of implications in terms of the technological advances expected to result and the amount of data generated.

WUGI takes high-conviction positions in companies across the size spectrum within each of the three categories targeted. Companies are selected based on a combination of top-down and bottom-up research, the document says.

According to Karan Trehan, co-founder and chairman of Esoterica, the portfolio consists of 35-45 heavily researched companies. The firm has two analysts in China in addition to its U.S. team, and WUGI mainly focuses on companies in the U.S. and Asia.

The Technology

“We’ve taken stock of what happened during the era of 4G. Some companies won, and others did not. And in particular, the companies that were involved in putting in the physical infrastructure, did not win,” Trehan said, noting that it was companies providing services, like Netflix, and core technologies that saw the most success.

“We are not taking an index approach of just about everybody who can be broadly associated with the world of technology. Instead we are drilling right down to 5G,” he added. “Our investment thesis is that initially 5G is taking place at the enterprise level, meaning that it is taking place in the cloud and is participating in the way the cloud is moving to the edge.”

Bruce Liu, co-founder and CEO of Esoterica, noted “5G enables the next generation of technologies.”

Trehan says that depending on the radio spectrums being used, 5G can be 10 to 100 times faster than 4G technology. That enables more advanced technologies such as self-driving cars, remote surgeries, smart factories, smart cities and gaming via smartphones.

“Data usage is going to be exponentially much larger. And you’ve got to leave that data somewhere. So that’s why cloud infrastructure is so important to the 5G ecosystem. You can’t keep all that data on your phone,” Liu pointed out. And Trehan notes that 5G will likely spur a proliferation of data centers much closer to where the 5G usage is occurring.   

There are two ETFs covering the 5G market already: the $297 million First Trust Indxx NextG ETF (NXTG) and the $226 million Defiance Next Gen Connectivity ETF (FIVG). Both funds are cheaper than WUGI, with NXTG charging 0.70% and FIVG charging 0.30%. However, they are also index based rather than actively managed.

Contact Heather Bell at [email protected]