Sponsored article: Matthew Norris looks at the benefits of investing in the infrastructure that underpins the modern digital world.
The digital age is firmly here. In just one minute on the internet, there will have been 4.1 million Google searches conducted and 400,000 apps downloaded*.
The so-called “fourth industrial revolution”, in which digital technologies pervade every area of life, from how we work and play, to how we navigate day-to-day life, is well underway. This evolution from analogue to digital has happened startlingly quickly. The technology now at our fingertips operates at a speed and sophistication that would have once fallen well beyond the reach of many of our imaginations.
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Beyond exposure to the technology behemoths, there is another, more predictable way to gain exposure to this fourth industrial revolution. Digital infrastructure assets are, by definition, physical in nature; they generate contractual income, have long time horizons and are accessible to investors via liquid listed securities. They are critical in nature as they fulfil a fundamental digital need. These assets are well established in developed markets around the world and there is nothing short of exponential growth ahead.
Revolution
There are four broad categories which account for the most important components of this next generation of infrastructure: logistics warehouses, data centres, fibre optic cable networks, and mobile communication towers. Each benefits from the digital revolution we have all experienced in our day-to-day lives.
Logistics warehouses have benefitted from a boom in e-commerce that was present even before the well-documented, pandemic-induced mass adoption of internet shopping with consumers desiring an increasing breadth of goods with ever faster delivery times.
Data centres—large purpose-built server warehouses—host the physical servers that businesses need to store and transmit their data and continue to benefit from growing demand. The need for central hubs to host and transmit data will continue to accelerate, putting successful, sophisticated data centres at the forefront of the digital revolution. According to the Institute for Economic Affairs, this dynamic is “driving exponential growth in demand for data centre and network services”. Global internet traffic is expected to double by 2022 and the number of mobile internet users is expected to hit five billion by 2025**.
Of course, this data relies on a physical network to enable the transmission to and from users at work and home, requiring networks of communications towers. The huge rise in data usage is incompatible with ageing infrastructure and there is an obvious and overwhelming need to replace old copper cables with new fibre optic cables, offering greater bandwidth and speed.
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Opportunity
These assets benefit from long-term rental contracts with high-quality growing tenants and as the digital world expands in the years ahead, these assets are likely to grow in importance. Investing in this long-term trend presents an opportunity for investors to tap into the potential for steady returns and secure and growing income.
The VT Gravis Digital Infrastructure Income Fund (DIIF) typifies the Gravis investment philosophy, providing investors with a new and innovative way to access the companies poised to benefit from the continuing digital revolution, whilst delivering reliable long-term income. The fund is a UCITS V open-ended investment company with daily liquidity, which invests in the companies that own and operate the physical assets vital to the digital world: telecommunications towers, fibre optic networks, data centres and logistics facilities for the fulfilment of e-commerce.
These companies, which own thousands of digital infrastructure assets, rent space to thousands of tenants (generally on long leases, which often incorporate fixed rental escalators or CPI/RPI linkage), who are supported by millions of individual customers. The fund targets a 3% dividend yield with circa.70% of the fund invested in REITs which must distribute most of their income to shareholders to maintain their REIT status.
The Gravis approach to fund management is perfectly depicted by the company’s tortoise logo: slow, steady and consistent. We specialise in funds that do something a little different, providing investors with exposure to the more stable and predictable side of many of today’s exciting themes, resulting in reliable, long-term income from alternative sectors.
Matthew Norris is an adviser to the VT Gravis Digital Infrastruction Income Fund (DIIF) and the VT Gravis UK Listed Property (PAIF) Fund.
Photo: blickpixel / 1910, Pixabay
* https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/ms6y/drsi
** https://www.iea.org/reports/data-centres-and-data-transmission-networks
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