Why 5G Is Meaningful For This High-Flying Real Estate ETF

The fifth generation of wireless connectivity, or 5G, is getting plenty of attention this year although it doesn't roll in earnest until 2020.

While there are some exchange traded funds explicitly dedicated to the 5G theme, one of the best ways of playing 5G this year has been with the Pacer Benchmark Data & Infrastructure Real Estate SRVR.

What Happened

All SRVR has done this year is gain nearly 36%, outpacing the largest real estate ETF by about 1,200 basis points. SRVR is proof positive that there are instances where a refined focus is rewarding with real estate ETFs. The fund focuses on data and technology infrastructure REITs, which are among the fastest-growing corners of the real estate universe.

Traditional diversified REIT ETFs are just that: diversified and the rub with that diversification is lack of exposure to cloud computing and 5G themes that are powering SRVR.

Why It's Important

Data confirm that SRVR is the way to play the aforementioned themes. Twelve of the ETF's 18 holdings reside in the MSCI US Investable Market Real Estate 25/50 Index, the benchmark used by the largest domestic REIT ETF, but the overlap by weight between SRVR and that ETF is just 20%. That goes a long way toward explaining the performance gap between, the one favoring SRVR, the two funds.

“SRVR Index’s track record of reliable and growing dividends, combined with long-term capital appreciation through stock price increases, has provided investors with attractive total return performance for many periods over the past 10 years,” said Kevin Kelly of Benchmark Investments in a new white paper. “Performance dispersion is significant when compared to the broader stock market, broad based real estate, fixed income indices, and other major indices, as well as the rate of inflation.”

Over the past five years, SRVR's underlying index outpaced the S&P 500 by over 350 basis points with a lower beta and a higher alpha and Sharpe ratio.

What's Next

While 5G is seen as the driving force for SRVR over the near-term, the fund is levered to other fast-growing themes, such as artificial intelligence, augmented/virtual reality, blockchain and internet of things, dubbed the “four horsemen” by Kelly.

“These new technologies enablethe efficient collection,storage and processing of immutable data,” said Kelly. “Businesses will want to move their data securely from on premise to cloud,where they can apply leading cloud solutions,and tools,to uncover new trends and insights.”

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