For much of the past two years, artificial intelligence has been the dominant theme in equity markets. A narrow group of technology names has driven index returns, and with that concentration has come volatility. Many portfolios that look diversified on paper now carry a heavy, often unintended, bet on a single theme.

That raises a practical question for investors: where can you find returns that do not depend on whether the AI trade keeps running? We believe UK infrastructure is one answer. It isn’t immune to markets, but its returns are driven by long-dated contracts and regulated frameworks underpinned by essential assets, so it sits largely outside the AI narrative.

In our view, the AI boom has stretched the meaning of the word infrastructure. Over the past 18 to 24 months, hardware makers, component suppliers and semiconductor companies have increasingly been traded as "AI infrastructure". But these are cyclical businesses and have been through several sharp pullbacks through 2025 and 2026.

Infrastructure, to us, is something else entirely. It means hard, physical assets that provide an essential service, often as a natural monopoly, with low obsolescence risk. The counterparties are also typically government bodies, regulated utilities or blue-chip tenants, willing to sign long-term contracts precisely because the service is essential.

That structure is what makes infrastructure a diversifier. Revenue from an availability-based contract (where the operator is paid for keeping an asset available, not for how much it is used) or a regulated return is driven by inflation and contract terms rather than technology sentiment.

Through this structure and diversification, availability-based UK Infrastructure should be seen as a bond proxy with equity upside.

Simply owning a global infrastructure index, however, may not be providing exposure to this core infrastructure. This is because global listed infrastructure is heavily weighted to US electric utilities, alongside midstream pipelines and demand-based transport assets such as airports, ports and toll roads.

US utilities are now priced on a very different story from their UK counterparts. BloombergNEF estimates data centres could account for around 20% of US electricity demand by 2035. In Europe, McKinsey puts the figure at around 5% by 2030, while UK estimates range from about 7% to 9%*. As a result, US utilities increasingly behave like a growth trade, with valuations tied to the same AI expectations that drive technology stocks.

The UK's demand story is much broader. Electrification here is driven by power generation, heating and transport as much as by data centres, which spreads the drivers of growth across the economy rather than concentrating them in one theme.

The regulatory model reinforces the difference. UK regulators set allowed returns in real terms under Ofgem's RIIO framework for energy networks (Revenue = Incentives + Innovation + Outputs) and Ofwat's PR24 price review for water. Inflation feeds through into revenues systematically. In the US, most frameworks set returns in nominal terms, so utilities often wait three to five years for the next rate case to recover inflation.

We therefore see the two as complementary. Global infrastructure is increasingly a capital growth story, while UK infrastructure remains both an income and diversification story.

The clearest sign that UK infrastructure is driven by different forces, is where its returns come from. Across the four ways we access the asset class, most of the total return is yield and contracted growth, not multiple expansion on the back of a market narrative.

Because each route behaves differently, we can lean into them at different points in the cycle. Credit can be added when spreads widen; equities can be trimmed when valuations look stretched. Throughout, the aim is steady, predictable income. The TM Gravis UK Infrastructure Income Fund has paid around 5p per unit every year since launch, in a range of very different markets. This equates to having paid back more than half of investors’ capital in income payments since launch**.

UK infrastructure's lack of reliance on the AI trade does not make it independent of everything. Its biggest sensitivity is interest rates. Listed infrastructure is valued on discounted cash flows, so when gilt yields rise, discount rates rise and valuations fall, even when the underlying assets are performing exactly as expected.

That happened in the rapid rate-hiking cycle of 2022–23. Share prices across the sector fell, while the income kept coming. As the easing cycle began in 2024, those mark-to-market losses have started to reverse.

We manage other risks by design. Our strategy targets at least 75% of the portfolio in government-backed or regulated frameworks and at least 80% in operational assets, limiting construction risk. We keep exposure to demand-based assets such as airports, ports, and rail low because their revenues track the economic cycle. Any cyclical holdings, such as contractors benefiting from the current UK investment cycle, are sized as tactical positions, with weight limits to manage liquidity.

The UK's growth drivers for infrastructure are domestic and long-dated. The government's ten-year infrastructure strategy points to around £725 billion of investment over the next decade. Large projects such as Thames Tideway and Sizewell C are being financed under the regulated asset base (RAB) model, in which investors earn a regulated return on capital during construction and operation, with risk shared between investors, consumers and government. RAB is replacing the PFI and PPP structures of the past.

The listed sector itself has been through a rationalisation. Since 2019, several investment companies have been taken private by infrastructure buyers, and others with fixed lives have wound down and returned capital. We see this as healthy capital recycling: the companies that remain are, on the whole, the stronger ones, and returned capital is looking for a home. Private buyers paying for these assets is also a useful signal of their underlying value.

None of this depends on the next AI earnings release. For portfolios that have quietly become a bet on one theme, UK core infrastructure offers a source of income and return driven by contracts, regulation and inflation, and a genuine counterweight when sentiment turns.

*Source: Bloomberg (Data Centers on Track to Suck Up a Fifth of US Power Use by 2035), McKinsey (Europe is squarely in its AI load growth era), AI Energy Council (AI Energy Council minutes: Monday 30 June 2025 (HTML) - GOV.UK) and Oxford Economics (The UK’s data centre boom: growth trends, drivers, and the rising power challenge | Oxford Economics)

**Source: Gravis, ^as at 30^th September 2026. Net yield and income paid since inception are shown using the C Inc GCP share class.

Important information

This article is issued by Gravis Advisory Limited (“GAL” or the “Firm”), which is authorised and regulated by the Financial Conduct Authority. GAL’s registered office address is 24 Savile Row, London, United Kingdom, W1S 2ES. The company is registered in England and Wales under registration number 09910124.

The TM Gravis UK Infrastructure Income Fund (the “Fund”) is a sub-fund of TM Gravis Funds ICVC, which is a UK UCITS scheme and an umbrella company for the purposes of the OEIC Regulations. The Authorised Fund Manager of TM Gravis Funds ICVC is Thesis Unit Trust Management Limited (TUTMAN), Exchange Building, St John’s Street, Chichester, West Sussex, PO19 1UP. TUTMAN is authorised and regulated by the Financial Conduct Authority. GAL is the investment manager of the Fund.

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