Webinar Replay: 5G & The Internet of Things – How Connectivity is the Future of the Internet
The Internet of Things (IoT) devices are those that either collect and send data, receive and respond to it, or do both. From this functionality comes use cases that span industries and exist at the convergence of myriad disruptive technologies – IoT data is stored in the cloud, processed by artificial intelligence and machine learning algorithms, and transmitted over remote 5G networks as instructions for connected-devices to follow. In this webcast, we will explore why IoT is the disruptive technological force that it is today, the ways it touches our everyday lives, and what the future might hold for this powerful thematic investment.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any stock in particular.
We’re very excited to talk about the theme of “5G and The Internet of Things,” how connectivity is the future of the Internet. Just very briefly about who we are, we are Global X ETFs. We are a Manhattan-based ETF issuer, with about 12 billion in assets under management. We are very well-known for our Thematic Growth Suite of ETFs, where we have 18 different products and over three and a half billion in assets under management. Some of you may know us from our Income Suite as well, which includes the SuperDividend Suite of ETFs, MLPs, Preferreds, and Covered Calls.
Today, we have three of us from the research team on the line. Myself, Jay Jacobs, I lead the team, and I’m joined by two Thematic research analysts, Pedro Palandrani and Andrew Little. We’ll be rotating with different presentations and slides throughout the day, but I encourage all of you not to just listen to today’s presentation and to download the presentation but to follow us on Twitter as we’re constantly providing updates on new research and new insights into the markets across a variety of different themes, not just the Internet of Things and 5G, but looking at areas like Robotics, and Artificial Intelligence, FinTech, Cybersecurity, Video Games and Esports, Lithium and Battery Technology, a very wide range of different themes that are really disrupting the global economy.
The plan for today, we’re going to give an overview of thematic investing, how we think about broadly the thematic investing space. Then we’ll dive right into the Internet of Things talking about a few different areas of how it’s going to impact our daily lives from connected cars to smart cities to the healthcare sector, the Industrial Internet of Things with factories and agriculture, the rollout of 5G and how that’s going to change everything in the IoT landscape, and how we see that adaption happening over the next few years. We will conclude looking at how IoT is connected to other themes that we’ve been talking about over the last few years.
Starting from the top and how we think about thematic investing. We like to look at portfolio management in two different buckets. A lot of portfolio managers either depend on looking at the past and historical data to try to extrapolate things from what we’ve seen happen already as well as anticipating changes that will happen in the future. When we look at the past, we’re looking at data; we’re believing that history will repeat itself in some way; maybe we’re trying to capture a certain factor premia or smart beta by knowing that history shows us that the value factor outperforms or small caps outperform over the long run.
Also, many portfolio managers are trying to capture what’s going to be different next time, the forward-looking approach. What’s going to change? What’s going to be a structural disruption that hasn’t happened before? This forward-looking approach is where Thematic investing comes in.
It’s a top down, bottoms up process where we’re looking to identify the disruptive macro-level trends in the underlying investments that stand to benefit from the materialization of those trends. Out of this work, from the top down, we’re looking at what are the most disruptive areas around the world, whether that’s looking at something like Robotics and AI, or the Internet of Things, or Lithium and Battery Technology. From the bottom up, we’re trying to identify which are the companies that stand to benefit the most from those trends, companies that derive significant revenues from those trends that are critical to the space or involved in a lot of R&D developing these trends going forward.
The thematic investing inherently is a long-term, growth-focused strategy. It is unconstrained by geographic and sector definitions. We don’t care if an IoT company is based out of the US or Europe or Asia; we just want to own the companies that are best positioned in the IoT space. Some of them are classified as technology stock, some are classified as even healthcare stocks, as industrial stocks. Also, we don’t care about those sector classifications because thematic investing inherently ignores geographic and sector definitions in pursuit of the companies that stand to benefit from the materialization of the theme. Because these are more concentrated portfolios and because they don’t adhere to these typical geographic and sector classifications, they tend to have low correlations to other growth strategies in one’s portfolio.
Finally, these are relatable concepts. When we talk about a concept like factor investing, like the value factor or the size factor, sometimes it’s hard to visualize that in person. What is the value factor? What is the size factor?
With thematic investing, we see these themes playing out in front of our very eyes. We see that people are using the IoT more in their daily lives. We see our friends and our family buying connected devices, whether it’s a smartwatch, or a smart TV, or a car that has internet connection. We see it happening right in front of us, which I think is a great benefit to thematic investing that it doesn’t just exist in an Excel spreadsheet.
How do we determine what themes should be considered by investors and ultimately what we would bring out in an ETF? We really look for three things. The first one is conviction. Do we believe that this theme is going to disrupt the global economy?
We look at a variety of different metrics to try to determine that conviction. We look at the state of the technology that we might be analyzing. We look at is there a path to profitability? What’s the total addressable market? How much of that market has already been penetrated? We’re looking at a variety of different metrics to try to understand, is the theme going to play out. Is it going to disrupt a huge portion of the global economy?
If it passes our conviction test, we move onto investability. For an ETF to track a theme, it needs at least 20 publicly traded companies. We can’t invest in the private sector. We really would prefer more than 20 names, more like 25 to 30 to create a little bit of a buffer and more diversification within that theme. Even more importantly than that, we want to make sure that these companies have pure-play exposure to the theme, that they’re generating the majority of their revenues, or that they’re very tied to the theme in a meaningful and tangible way. Many of the themes that we’ve looked at, and we’ve looked at over 60 different themes but only have 17 thematic ETFs tracking individual themes, many of the ones that fail, fail the investability test because they’re simply too early because they don’t have quite that investable criteria yet.
The third thing we look at though is time frame. We’re looking for themes that are mediums of the long-term, at least five years, but really, we’re looking at multiple decades of disruption. When we talk about the IoT today, we’re not just talking about changes that are going to happen over the next year; we’re talking about changes that are going to happen over decades. The reason why this time frame component is important to us is because we don’t see thematic investing as a trade; we see it as an investment that is meant to be buy and hold for the long-term as this disruption plays out. We don’t want such an emphasis to be on the entry and exit point.
I alluded to the fact that we have 18 different thematic ETFs, 17 different themes. Here’s the list of the themes that have passed those three criteria tests. You can see many of them are in the technology space as technology continues to evolve faster and faster and disrupt bigger parts of the global economy. We see the Internet of Things right here, SNSR. That’s the theme that we’re going to be talking about in greater detail today.
Just a couple more slides here before we dig into the Internet of Things and 5G. We’ve done a lot of work to scope out the entire thematic landscape within the ETF space as well. Right now, we have about 121 thematic ETFs in the United States, just shy of $28 billion in assets under management.
You can see it’s grown a lot in the last few years. Since 2015, assets have grown by about five times, the number of funds has grown by about three times. Thematic investing is not new, so this is not just a fade that is just starting to play out; people have been thematic investing for years. The difference is now it’s accessible to everyone through the ETF structure.
Historically, the idea of identifying themes and doing the research to understand which companies benefit from those themes was very difficult to implement at scale and usually was really just limited to institutions that had the research capabilities and the global trading capabilities necessary to get that kind of exposure. Now, with ETFs, which can package an entire theme into a single product that trades on virtually any brokerage account, that has made it much more accessible to a broader market. That’s why we’re seeing quite the uptake in assets under management.
Lastly, we’ve also created a classification system for all the themes that we are tracking. This is very unique in this space and something that we’ve been developing over a while because we realize there’s so many themes out there and so many products tracking the thematic space that there’s really a need to think about how do all these themes fit together? Which products are mapped to which themes? How do we think about the depth of certain themes like something like Disruptive Technology versus a more specific theme like Social Media or Mobile Payments?
We’ve created a classification system where each of those 121 ETFs are mapped to a specific part of this classification. That is also available on our website. We update it on a quarterly basis as we see more and more interest in tracking the thematic space.
You can see right in here, the Internet of Things is one of our themes that is part of the mega-theme of Connectivity within the category Disruptive Technology. We’ll be talking about many of those sub-themes that go into the Internet of Things today like Smart Devices, Smart Cities, and the Industrial Internet of Things.
First, I will share with everyone how I use the Internet of Things in my daily life. To be fully transparent, while I do research on disruptive thematic technologies, I’m not a complete technophile. I don’t have a house with connected blinds that automatically raise and lower when I wake up in the morning or smart lights that know how to dim exactly when I’m trying to go to sleep or waking up in the morning. I think I’m a pretty normal person when it comes to technological adaptation. I will share with you just a snapshot into my life and how I use the Internet of Things.
When I wake up in the morning, the first thing I do before I even get out of bed is I check my iPhone, which is connected to a Garmin smartwatch, which is collecting data on how I slept the night before. As you can see in this example, eight hours of sleep. I’m pretty pleased with that. Part of this is just trying to track overall health, whether I’m getting enough sleep over the week. If I’m traveling, if I’m in the office late or something like that, this is a great way to understand with data how I’m doing against my goals.
Then as I start to get up, I will go to my Google and I will ask it my – I will ask it for the latest news. It will tell me the weather. It will tell me what’s happened in the markets. It will give me a whole rundown of updates. It’ll tell me the time automatically as I’m getting ready in the morning.
Next, as I’m starting to leave my apartment, that is me in my apartment. My smart camera that is connected to the Internet notices that somebody is walking around in the dark. It detects that person. It records a ten-second video and sends it instantly to my phone. Now, obviously, I’m not concerned. I know this is myself, but this is a very easy and convenient way of having home security.
As I’m leaving the door, I check my phone to figure out what is the fastest method to get to the office based off of current real-time data from the New York City Subway system. Again, I don’t think any of this is a forced use of technology because I’m a huge technophile. These are basic conveniences in my daily life where I’m integrating the IoT into things like staying current with the news, staying current with my health, having security in my house, and understanding how to get to the office quickly. Now, if I extended this throughout the rest of the day, there would be many more instances where I’m using the IoT, but I think many of you also are probably using similar devices to interact with your daily lives for the conveniences that the IoT may bring.
What exactly is the Internet of Things and how does it work? I really think the best example here is to look back at a very simple device, which is to look at the lightbulb and to see how that has changed over time. The original lightbulb is over 200 years old.
For the first 200 years of the lightbulb’s existence, it didn’t really change. It got a little bit more longevity; lightbulbs would last a little bit longer. They got a little bit more efficient, so they didn’t use as much energy. For the most part, a lightbulb, whether it was an electric arc light, an Edison bulb, a compact fluorescent, an LED, was simply just turning on and off. Everything changed in 2012 when the Phillips Hue lightbulb came out and somebody decided to put a chip inside of a lightbulb.
What does it mean to put a chip inside of a lightbulb? Suddenly, a device that had to manually be turned on and off could be controlled by your phone. You can tell that lightbulb to turn on and off remotely. If you are in the garage and wanted to have the lights on when you came into your house, you could program your lightbulb to automatically turn on in the morning when you wanted to wake up to natural light. You could connect that lightbulb to your TV. If you told Alexa, I’d like to watch Netflix, not only would the TV turn on, but the lights would start to dim.
Not only was it sending commands to your lightbulb, but you could also receive data from that lightbulb as well. As you were running it, it could collect data on whether you were using it efficiently or whether there were enhancements that you could make to reduce your electric bill. It could also do predictive maintenance on itself to understand how much more lifespan does that lightbulb have. You can see that just putting in a very simple chip into a light bulb completely changes the number of use cases from just an on/off device to a smart integrated device that can be controlled remotely making it a much more valuable, much more useful device in the future.
Now, the reason why so many things are being connected to the Internet today, frankly, it’s just getting cheaper and easier. A lot of this follows Moore’s Law, which has every two years, the number of transistors on a microchip approximately doubles while the cost is halved. You can see that Moore’s Law for the most part has actually kept up as expected over the last 50 or so years. More tangibly, you can see this happening in very specific use cases. If you look at the original IBM 7090, which came out in 1959, it cost $19 million and could perform about 24,000 calculations per second. A Lenovo laptop today, which costs about 99% less, is also seven million times more capable from a computing perspective.
Now, over a shorter time frame, what we have – on the right-hand sign, you can see the Marvell Wi-Fi chip from 2007. This is the original chip that was in the first iPhone. It was the chip that connected the iPhone via Wi-Fi to give it internet connectivity that was not over 3G connection. That cost about $7.40 per unit. Today, a chip with very similar specs, actually enhanced a little bit, now costs about $0.10; another 99% deflation making it extremely cheap to connect virtually anything to the Internet with that chip.
As we’ll talk about today, we’ll see that a lot of different devices across a lot of different use cases are connected to the Internet for a very simple reason: it’s incredibly cheap and it’s incredibly small. For $0.10, a lot of things will be connected to the Internet. The fact that we can connect things to the Internet and make them smarter, there really is not a hurdle from a cost or space perspective.
Also, in this chart, we pull these images of those chips. They’re about a tenth of the size of a dime. These are drawn to scale. They’re so small that you can actually swallow these chips. In some of the use cases we’ll talk about today, people actually are swallowing Internet-connected chips at this point.
We see the Internet of Things everywhere around us. These cheap, tiny chips are being connected in our homes, in factories, in our cars, on our wearables on our wrists, on street signs on the streets. We’re truly seeing an absolute explosion of devices connected to the Internet due to this very cheap, very capable, and very small chips.
With that, I’ll turn it over to our Research Analyst, Pedro Palandrani, to talk about connected cars and this slice of the IoT market.
Thanks, Jay. So far, we have mainly talked about smaller scale IoT applications, but IoT use cases go far beyond turning things on and off on our smartphones. Let’s take connected cars, for example. Basically, today’s autonomous vehicles are equipped with over 200 sensors. These sensors record simple stuff like data from GPS systems and engine health, but some of them like a radar ultrasonic and lighter sensor record sophisticated information on vehicles surrounding us as well.
Just to put this into context, a standard vehicle today has an average of just $400 of semiconductors for all electronic systems. If you look at an electric vehicle, that’s five times greater. You can see that on the left-hand side. That’s about $2,000 worth of semiconductors.
If you didn’t look at autonomous vehicles, we’re talking about $15,000 worth of semiconductors. This in mind and with about 2.3 million autonomous rated vehicles that are expected to be on the roads over the next three years, the market size for all kinds of semiconductors in the autonomous vehicle segment is expected to reach about $11 billion combining both consumer and commercial autonomous vehicles market sizes.
Also, importantly, we really think that ride-hailing technology could open the door for people to try autonomous vehicles. We have seen already Alphabet’s Waymo, for example. It recently announcing the rollout of their ride-hailing services in Phoenix, Arizona.
Going back to sensors, with all these semiconductors and chips in a vehicle, autonomous vehicles are really generating vast amounts of data. All of it combined with edge computing, cloud computing, and 5G technology really made possible to analyze and transmit proximity data in real-time, enabling split-second autonomous driving decisions without compromising the safety of those on board of the car or in surrounding vehicles. Also, some data can be useful when aggregated over time. Information about engine or brake health can reveal trends that accurately predict when a car needs to undergo maintenance and also let drivers and car manufacturers know when it’s time to go back into the shop for any fixes. Some estimates have predictive maintenance catching about 92% of vehicle failures in advance.
We’re seeing that case in real life with companies like Tesla that send over-the-air or OTA updates to their car fleets. This is basically reducing the frequency that drivers have to bring their cars to the shop to be fixed. It’s projected that these types of fixes will result in about $35 billion in annual cost savings for automakers in general by 2022.
Finally, vehicle-to-everything connectivity is the idea that connected cars can communicate with a whole range of other connected devices. You can think about it; it can optimize GPS routing, improve fuel efficiency, and also give important information to drivers of non-autonomous vehicles. It’s actually estimated that this type of connectivity could avert over 600,000 crashes annually. As we focus more on what cars are communicating with, it becomes clearer that cars are just one part of a greater smart system, smart systems, smart cities, for example. I’ll pass it over to Andrew who will show us how and why IoT is so important for smart cities, Andrew.
Thanks for that, Pedro. Smart cities are urban environments where information constantly flows between connected devices, citizens, and centralized decision-making hubs optimizing how cities operate and improving the quality of life for those that live in them. They encompass numerous systems that are integral to city life, interconnecting them through networks and using artificial intelligence and advanced data analytics to create instructions for those systems.
Mobility is one area we’ve already explored, but it goes beyond simply improving one’s driving experience. Cities can use data from connected cars and road embedded sensors to get a better picture of what’s actually happening on the streets, using it to create instructions for connected traffic lights or to shut down streets and avenues according to the traffic. Some estimates have this type of connectivity reducing traffic congestion by as much as 40%. Public transportation can be similarly enhanced. Network connectivity makes it possible to optimize bus routes in real-time, monitor ridership, and adjust buses or train volumes accordingly, as well as send updates to prospective riders on their phones.
While these enhancements are beneficial on their own, optimized point to point travel requires that transit systems be interconnected. Mobility-as-a-service or Maas addresses this idea integrating public and private transport options across networks and presenting them to the public at a single endpoint, again, a smartphone. In a Maas model, users can choose between affordability, speed, and comfort across a multitude of transport modes available. Some estimates have the market for Maas reaching $372 billion by the year 2026, representing almost a 24% compounded annual growth rate between now and then.
The Internet of Things could potentially revolutionize the way cities approach infrastructure as well. Smart grids and water supplies give cities and utility providers greater control over how they distribute water and electricity while also yielding important consumption and usage data. This information and control enables more efficiently distributed systems and services, especially when coupled with artificial intelligence, minimizing unnecessary resource use, and passing down economic benefit to all parties involved.
Over the next 20 years, it is estimated that smart grid savings will be as high as two trillion dollars across the US. Network-enabled sensors built into physical infrastructure can also revel critical information that streamlines how cities operate. Similar to predictive maintenance and autos, which Pedro mentioned, data from connected roads, bridges, and even airport runways can proactively or reactively give notice that some repairs are needed. Doesn’t that sound a lot better than waiting until you get a flat tire to fix a pothole?
Finally, IoT has the potential to make cities safer places to live in. Connected cameras and audio recorders make it easy to monitor vast urban sprawls. AI can analyze data from these devices to identify criminal activity automatically alerting authorities and sending out community notifications when deemed necessary. Already in San Francisco, connected sensors that call authorities when a firearm is discharged have been credited with helping reduce gun crime by up to 50%.
Moving over to another vertical, IoT-driven transformation is also taking place in healthcare. Where IoT is revolutionizing how doctors connect with patients improving outcomes for both. Connectivity can address certain pain points that made medical treatment more difficult in the past. For example, many doctors note that some patients either forget or refuse to take their medication making it difficult to effectively treat them. Sensor-equipped pills such as Proteus can service as a solution to this. The pill’s ingestible sensor, as Jay was mentioning earlier with that really, really tiny Wi-Fi chip, once ingested, monitors how a drug is absorbed and then, it monitors how effective it is. Letting doctors know when medication is taken and how well it’s working.
Chronic disease management can also be a struggle for doctors and patients. For both groups actually. People with type 1 diabetes for example, monitor their glucose levels continuously and take insulin to manage their condition and avoid complications. In the past, this was a chore that required attentive monitoring, but today, devices like IoT-equipped continuous glucose monitors and insulin pumps can make the process mostly hands-off. Checking blood sugar levels, automatically delivering predictively-dosed medication and organizing health data in an accessible way. The benefits are clear. Users of Dexcom’s IoT-enabled continuous glucose monitors saw a 1.3% reduction in sugar-related A1C, a compound that shows how much sugar is in the blood. Also, one benefit here was reduced time spent in hypoglycemia among most users.
This type of automation also makes it easier for doctors to treat patients from afar. For instance, doctors can think, IoT-enabled drug infusion pumps to drug libraries and automatically administer medication regardless of proximity to patients. Remotely-managed treatment options like Philips eICU, electronic intensive care unit brings the same type of care to remote patients on a larger scale extending critical care resources to patient’s bedside via AV, audiovisual technology, predictive analytics and advance reporting. Areas served by the program have seen a 20% reduction on mortality and reduced cost of up to $1.5k per patient.
Hospitals are also seeing similar tech-driven transformation creating the term smart hospital. In some smart hospitals, medical staff and devices are equipped with tracking technology which makes it easy to track and optimize how doctors are deployed and also to track down missing equipment. Inventory management is also enhanced in connected hospitals. Vaccine fridges for example, regulate how vaccines are stored and keeps track of inventory so critical medications are always in stock. The data reflects how much this technology is being embraced. In 2018, the size of the Internet of Medical Things market was estimated at around $35 billion. By 2025, this is expected to grow to $136 billion approximately. The Internet of Medical Things should only become more pervasive in the years to come. With that, we’re going to explore another vertical. I’m going to pass it back to Pedro to talk about the Industrial Internet of Things.
It’s really fascinating to see how IoT is touching so many sectors in our economy. As you look at IoT implementation across different verticals like the ones that we have talked about, it becomes apparent that the main benefit of IoT-lizing the ability to transform and optimize entire systems. This is why in the industrial segment IoT plays such an important role. Basically, the industrial IoT is based on the premise that sensors are attached to physical assets to gather data which is collected and analyzed to inform smarter and more dynamic manufacturing decisions. The data from these assets can be used on digital representations of these real physical assets. You can think about digital twins. Basically, in an attempt to train and fix many of the issues in manufacturing equipment that we’re seeing in factories today.
Again, we can see IoT playing such an important role. You can think of predictive maintenance, for example. IoT checks and measure on the temperature, vibration and sound frequency of machines which then helps to predict failure and to avoid costly downtime. Pretty much, it is estimated that any downtime minutes cost about $60,000 for companies in the manufacturing segment. IoT also helps with location, tracking and traceability. It basically allows companies to track everything that’s moving on the factory. This reminds me of the recent tour that our research team did to an Amazon fulfillment center. You can see how IoT via computer vision and sensors, can track every single package on the sensor. Its location. How fast can it be delivered to consumers? Where they need to go and really help humans and robots to move products and packages as fast as possible. Really fascinating.
Of course, IoT’s core piece of the industry 4.0 concept, helping robots to be connected to networks and also work alongside humans. Having all these data really provides the ability to customize products. For example, back in 1927, as you can see on the right-hand side of the screen, Ford produced thousands of Model Ts per day, but there was only one type of model available. Today, a Ford F-150 can be manufactured in about 600,000 different variations. Now IoT is really transforming the industrial segment and the robotics and automation that are so common these days.
If we continue to see here on the industrial segment, like I say before, sensors and chips are fundamental in the industrial segment, but also for collaborative robots. These cobots rely on sensor functions like vision, touch, hearing, and motion detection to work alongside humans. Given that about 34% of industrial robots could be cobots by 2025, this will create huge demand for this type of sensors. Even outside factories on the agricultural segment, for example, we found out recently that sensors are becoming extremely important. Earlier this year at CES, the consumer electronic shows in Vegas, we met with John Deere, the manufacturer of agricultural machines among other equipment, manufacturing equipment.
One particular case was the use of cutting-edge machine vision and sensors and AI equipped tractors that are helping farmers across the world to scan fields, assess crops, and get rid of weeds all at the same time. This technology is called See & Spray and basically, seeks to replace today’s best practice of treating all plants as if they have the same needs. This See & Spray technology is changing the paradigm. Simply put, the tractors identify each plant on an individual basis and then, applies water or spray herbicides only where its needed. With this technology, a farmer can save up to 90% of the volume of chemicals being sprayed on farms around the world today. Those are few of the IoT cases and benefits in the industrial segment. With that, we’ll move to the 5G application and how this is a key driver for connectivity today. Andrew?
We talked a lot about how great connected devices are and what their significant number of use cases are and also, why they’re being embraced. Without a network for these devices to operate on, there’s no medium for connectivity. If the network isn’t powerful enough to accommodate billions of connected devices, you’re essentially stuck in the same place. Enter 5G. 5G networks are faster, have greater bandwidth and the physical imprint is a natural fit for a world that is running out of space and is increasingly urban as well. Instead of the fewer large cellular towers that supported past generation’s networks, 5G networks are 100 times denser. They’re compromised of many more small towers that have shorter range but are more powerful than maybe some of those other smaller cell towers you may have seen in the past. They’re found atop buildings, light posts, just about everywhere in both urban environments and in more rural or suburban environments.
In the coming years, hundreds of thousands of these 5G towers or cells will be deployed across the world covering up to 65% of the global population by 2025. What does this mean for the Internet of Things? Up to 100 times more devices can connect to a 5G network over our past 4G networks and this increased capacity doesn’t compromise speed. With 10 times less latency than 4G networks, 5G means that devices can send and receive data almost instantaneously which again, can be especially critical for certain use cases like autonomous vehicles or medical care where you’re relying on connectivity either to make split-second driving decisions or for a doctor to make an informed decision regarding medication or any monitoring where there needs to be immediate data transmission. We believe that 5G will accelerate the growth of the Internet of Things and make the benefits much clearer or perhaps we even think that it might make the IoT look so seamless, we may not even notice.
Moving on to our next slide, regarding the actual investment in 5G. Many investors see 5G as an attractive investment area and we couldn’t agree more. We see 5G and IoT as two sides of the same coin and think that 5G exposure is best attained by investing across the 5G and IoT value chains. Looking for enablers and expected beneficiaries of the next generation of networking and enhanced connectivity. This means investing in semiconductors and sensors that make up the chips. Microcontrollers and high-performance processing units capable of processing 5G speeds and data volumes. We’re also looking at networking infrastructure and equipment like the routers and switches that telecommunication networks are built on. Even previous generation networks were built on these components and we feel that 5G networks will especially need these as they require more enhanced technology.
We’re also looking at connected products and services for industrial and governmental applications that are also important and include technology for smart grids, smart cities and connected cars as we’ve already discussed. Finally, we’re looking at the connected devices for consumer applications we’ve already been discussing. Every single one of those devices Jay was talking about earlier in his daily IoT journey, all of these different things are all a part of these connected devices that we see as beneficiaries. Very importantly, we do not include telecoms within our thesis for 5G as we feel that these companies will spend billions in capital expenditures to upgrade their existing infrastructure.
Further, mobile networks total cost of ownership will increase as 5G networks launch or continue to launch further. These costs are attributable to legacy network upgrades, network densification with these smaller cells, 5G layer installments and data growth. And looking at the chart on the right, semis, the orange line, significantly outperformed telecom during the previous network cycle.
We really see a few of these segments being very important for the 5G rollout. If you think about it, connected devices, semiconductors, as 5G gets rollout more – the adoption of many of these devices is expected to increase significantly, so very interesting results here. It leads us to the next slide on the presentation about where to in terms of IoT, right? If we look broadly to the IoT theme as a whole, it really shows no signs of slowing down. Some estimate that the number of connected devices will reach over 34 billion by 2025 up from about 20 billion last year which, if you think about it, will equal to more than four connected devices per person around the world. This doesn’t even include smart phones or laptops or just traditional connected devices. It’s more about the IoT or connected devices that we have talked during this presentation.
Really, if you think about it, this doesn’t even mean that we’re approaching a peak IoT. It means that connected devices are touching more aspects of our daily lives and also, business operations. This is happening more than even before. Maybe to sum up to the topics that we have discussed today, in the coming years, we expected to see significant growth in building automation driven by connected lighting devices and residential electricity, smart metering. We talked about that in smart cities. Government adoption will follow very closely as well driven by demand for smart city and infrastructure technology. Healthcare too should see similar growth as you see on this slide. This is mostly driven by chronic condition monitoring. Many other sectors in our economy really are going to see a huge economic benefit from IoT.
Looking at the next slide, these benefits aren’t just based on gut feelings. It is actually estimated that IoT implementation could generate up to $11 trillion a year in economic value by 2025. Much of this is expected – a positive impact could be passed down to consumers which is very important, consumers and IoT users. We estimate that IoT users could capture 90% of the value that IoT applications generate. For example, in 2025, remote monitoring could create as much 1.1 trillion a year in value by improving the health of chronic disease patients. Andrew was making reference to this before. You can see here other sectors where value is expected to be created across our economy. IoT is really transformational for our economy, our everyday life, and for the technology sector as a whole. What is super interesting is that IoT also sits at the intersection of so many emerging technologies. I’ll pass it over to Jay for final remarks here.
Great. Thanks, Pedro. This is one of our favorite slides and we talk about this in virtually all of our thematic webinars, but looking at not how these themes operate in isolation but how they interact with some of the other powerful themes that we see happening around the world, The Internet of Things is probably one of the most central themes to the broader thematic landscape of any of them because we see it’s connected to all different types of trends that are happening around the world. Playing video games on your PlayStation 5 that I guess will be coming out later this year with a Bluetooth controller. Encrypted devices with cyber security. The fitness trackers we’re wearing on our wrist connecting Internet of Things to the health and wellness trend.
The smart factory that Pedro was talking about, connecting robotics and AI to the internet via the Internet of Things as well as infrastructure, getting smarter than ever before because it can be connected to the internet. We see the Internet of Things as truly in the center of this chart of the multitude of themes that are happening at the same time. We think this only makes the Internet of Things more powerful. It will rise with these other themes as they start to accelerate that will create more demand for semiconductors, more demand for spectrum and for network connectivity across all different segments of the economy, across consumers, across enterprises, and across different regulatory environments.
To wrap it up the key takeaways from today’s presentation. First, what is driving the IoT’s growth? Rapidly falling costs as we talked about. Those chips for as little as 10 cents that connect devices to the internet. Improved internet speed. Of course, much of that is coming from the transition to 5G which allows for faster, lower latency and more connectivity of devices. There’s strong demand for IoT products as Pedro was discussing. We went to CES this year. You just don’t make an electronic product anymore that’s not connected to the internet and that’s because consumers want this type of feature. Growing commercial adoption. The industrial space, the infrastructure space, healthcare, a lot of enterprises starting to think about how the IoT can make their businesses more efficient.
Who do we think stands to benefit? We really think it’s three different segments of the market. The first being, the connected device manufacturers. These are the downstream creators of wearables, of smart meters, of appliances, all those devices that are connected to the internet. Second is what I like to call the midstream of the Internet of Things. It’s the network providers or services. The IoT depends on some network to transmit information. This is not the same thing as telecom companies. These are specific custom networks that connect devices to the internet. Thirdly, the semiconductor manufacturers. The people that are really making chips all around the world that are connected to Wi-Fi, to Bluetooth, the 4G to 5G. All different ways of connecting devices wirelessly.
What do we expect moving forward? As we mentioned, we see a lot of potential for convergence with other destructive technologies. AI and Big Data in particular. The more thirst there is for data in the world, the more the IoT is going to be looked upon to collect that data whether that’s cameras on streets or that’s connected devices collecting health information. The IoT is a downstream collector of data that can be processed by AI. Of course, the growth of cyber security as well is going to grow very much in lockstep with the IoT as people look to secure their privacy and their devices as well.
We also expect to see improved IoT chips and sensors. They’re small. They’re cheap, but they’re only going to get more powerful as more continues to compound year after year making the IoT even more instantaneous, more powerful and more portable going forward. Before we get into the Q&A, just a very quick reminder.
We have a lot of research on our website around the IoT, around thematic investing. I encourage everyone to go visit that at globalxetfs.com/research and to follow us on Twitter for our latest updates.
The first question is, what comes after 5G? We’ll turn that over to Andrew to talk a little about, is 5G a short-term fad or is it something that’s here to stay and how that landscape is going to evolve?
We typically think about network generations as on a ten-year cycle where every ten years there will be significant enhancements within that network and that could either mean the transition from – if you recall, in the mid-thousands, you had EDGE network connectivity and then, moving on to more enhanced EDGE generations, mid-generation. 3G, 4G, 4G LTE again, another enhancement on that original generation. Here we feel again, this 5G will be here for around ten years as a significant driver of connectivity. In the near term, we don’t really see any massive changes. We will see that as networks for the rollout and 5G cells are densified, meaning they’re placed in close proximity areas. We will truly see what 5G networks are going to be able provide and what enhancements that they really are putting out there.
Further, we think what differentiates the 5G revolution is its ability to scale different modes of deployment across different communication spectrums. In other words, we’ll see its impact at home. We’ll them in factories, even in hospitals. Really providing this remote access to robust connected technologies. It also can leverage different communication frequencies in the past. In the past, you were maybe bound to a few different frequencies. Now we’re seeing really low frequencies from 1 gigahertz all the way up to – this is more of a projection for mid-cycle but 100 gigahertz. 5G’s incredibly dynamic. We think that new use cases and modes will continue to expand.
More speculatively and this might be a little further than 10 years out, we’ll be reading about entirely new modes of connectivity in wireless connection. For example, engineers are looking into networks that use light instead of radio waves. Coined as Li-Fi, this tech uses light emitted from LEDs to beam data around rooms. Around 100 gigabits per second which is markedly faster than 5G but again, this is a very speculative – we aren’t quite there yet. Definitely in its infancy stage. This type of development shows that there’s more technology on instantaneous data transmission connectivity and such. The Internet of Things will continue to disrupt.
Great. Thanks, Andrew. That brings us to our second question. What are some of the ancillary stocks or industries that will benefit from 5G other than the chip manufacturers themselves? This is a great question. One way to think about it is, 5G is purely just the digital infrastructure. Just like we’ve seen the physical infrastructure and other forms of digital infrastructure, you do see these tangential industries tend to benefit from it. If we go back to the ‘50s when highways were built, who are the big winners of that. It was some of the fast food restaurants that were built alongside the highways. The motels, the whole ecosystem that was built around the highways.
We looked into this specifically for 4G, the last generation of technology and we saw that while chip manufactures and network service providers did quite well in the 4G rollout, it also really gave birth to two other industries. The social media industry and the e-commerce industry. I mean, those existed before but not in the form that they are in today. E-commerce and social media, you were really stuck in front of your computer buying things on your desktop or uploading images from your digital camera to your desktop to go on Facebook. The fact that that shifted to mobile is entirely because of the capabilities of 4G that allowed social media to be an instantaneous way of transferring information and the ability to buy things on e-commerce at pretty much anytime anywhere.
At 5G we see similar impact as well. This is the faster, better infrastructure that will be built and many new industries will be built on top of it. A few that I think are very likely to benefit, one is augmented and virtual reality that requires a huge amount of data throughput to be able to download all of that information to a headset that ideally is pretty lightweight on your head and doesn’t have a huge computer attached to it. That requires a 5G technology to really start to take off. Secondly, autonomous vehicles. The amount of data that they are collecting and processing, sending to the cloud, downloading, mapping information, that requires tons of data connectivity not only data throughput, not only a wide pipe to transfer all that information quickly, but also a very low latency so that it can act on that information very quickly. I think autonomous vehicles will also be a huge beneficiary of 5G.
Last, we’ve touched a little bit on the medical field, but telemedicine. Being able to have an instant connection to your doctor anywhere in the world. Not just through video chat which is perfectly capable on 4G technology but the ability to even – to monitor your heath through connected IoT devices, to conduct remote surgery through robotics that can take instructions from a surgeon in another part of the world. 5G is going to open a whole host of different ways of how people interact with hospitals and the medical services field. Again, we still believe the semiconductors and the network service providers and then, device manufactures are the most direct way of playing the 5G them, but there are many revolutionary technologies that will be built on top of that infrastructure.
It looks like we are pretty much at the end of our time here. Thank you again for joining today’s webinar. Hope you found it informative. We do these on a regular basis, so we hope to see you at our next webinar. Thank you all.
SNSR: The Global X Internet of Things ETF seeks to invest in companies that stand to potentially benefit from the broader adoption of the Internet of Things (IoT), as enabled by technologies such as WiFi, 5G telecommunications infrastructure, and fiber optics. 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.
To see individual ETF holdings across the Global X Thematic Growth Suite, click the below links:
- Disruptive Technology: Global X Future Analytics Tech ETF (AIQ), Global X Robotics & Artificial Intelligence ETF (BOTZ), Global X Cybersecurity ETF (BUG), Global X Cloud Computing ETF (CLOU), Global X Autonomous & Electric Vehicles ETF (DRIV), Global X FinTech ETF (FINX), Global X Video Games & Esports ETF (HERO), Global X Lithium and Battery Tech ETF (LIT), Global X Internet of Things ETF (SNSR), Global X Social Media ETF (SOCL)
- People and Demographics: Global X Cannabis ETF (POTX), Global X Millennials Thematic ETF (MILN), Global X Health & Wellness Thematic ETF (BFIT), Global X E-Commerce ETF (EBIZ), Global X Genomics & Biotechnology ETF (GNOM), Global X Longevity Thematic ETF (LNGR)
- Infrastructure Development: Global X U.S. Infrastructure Development ETF (PAVE)
- Multi-Theme: Global X Thematic Growth ETF (GXTG)