Earlier in November, Matt Norris, adviser to the VT Gravis Digital Infrastructure Fund, attended Portfolio Adviser: Winter Congress, where he touched on the opportunities and outlook fort the digital infrastructure sector. See the full video below.
What is the opportunity in the digital infrastructure sector and what differentiates it?
The opportunity is the fourth industrial revolution. A revolution that's changing our lives. It's changing the way that we work, the way that we live, the way that we play. Clearly the world of work has changed, and we see that evolving rapidly right now with generative AI entering the workplace, the way that we live our lives clearly changing, 5G we're becoming more mobile and we're streaming much more content. The way that we shop has clearly changed. We're all online shoppers and that trend is growing through time. All those changes require a new type of infrastructure. They require digital infrastructure, and there lies the investment opportunity to get yield plus growth, plus upside potential.
How can the digital infrastructure sector provide predictable, and growing income?
There are a couple of ways. One is contractual rental growth. The tenants of the data centres, the tenants of the e-commerce fulfilment centres, the companies, the mobile network operators that hang their dishes on towers, they sign a contractual lease. As owners of those assets, we benefit from contractual rental growth. Then the second area is rent reversion. Demand for these assets, typically it's outstripped supply, so market rents are higher than in-place rent - so we benefit from rent reversion. Two growth drivers, contractual rental growth plus rent reversion.
What is the outlook for the digital infrastructure sector?
The outlook is very positive. You know, with generative AI entering the workplace driving demand for data centres, with more and more people adopting 5G again, demand is growing. When you look at online sales, demand is increasing. The outlook is increasing demand for digital infrastructure assets leading to rental growth, which is good news for investors. As we expect to see further dividend growth. For investors, you get the current yield plus the growth outlook, plus this upside potential to the true value of the underlying assets.
How are valuations looking in this sector?
Right now, investing in digital infrastructure, you get three sources of return. You get yield, which is sort of low to mid-single digits. You get dividend growth, which is mid to high single digits, and then you've got significant upside potential in the value of the assets.
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