The long-term economic impact of the Coronavirus crisis won’t be clear for years to come. But one early trend seems to have more staying power than most: a shift to a work-from-home economy. This is best exemplified by Facebook, who employs nearly 50,000 people, announcing that 50% of their workforce will work remotely within the next 5-10 years. The work-from-home economy isn’t just limited to Silicon Valley either. Recently, Wall St mainstay Goldman Sacs said they plan to increase their remote workforce from 2% to 20%, and eventually 50%. With this in mind, we’ve been allocating to SRVR, an ETF that is well-positioned to benefit from a growing work-from-home economy.
SRVR provides data infrastructure
SRVR invests in companies deriving at least 85% of their earnings from real estate properties related to data and infrastructure. More specifically, this means firms that own or manage real estate used for storage, computation, or transmission of data, such as data centers and communication towers.
Data usage has been on the rise for many years making data storage an already growing trend. But the Coronavirus pandemic has accelerated that trend as more companies implement work-from-home policies. If the work-from-home culture proves to be everlasting the demand for data centers and communication towers will likely grow.
How do data centers work?
Data centers are simply centralized locations where computing and networking equipment is concentrated for the purpose of collecting, storing, processing, distributing, or allowing access to large amounts of data.
These data centers, like general office space, need to be leased and maintained. For example, companies will pay rent to data centers to help keep servers and data safe. They’re also paying for uninterruptable power supplies, air-cooled chillers, and physical security. An ETF like SRVR invests in companies that own and operate these data centers, such as Equinix (EQIX) or CyrusOne (CONE). So, as demand for data centers grows, then so too might the profits of these companies. Thus, potentially benefiting the share price of SRVR.
What about communication towers?
Communication towers are what allow you to send text messages, browse the web, or make calls from your mobile device in the time it takes you to sip your coffee. Like data centers, demand for communication towers was already growing. However, logically, it makes sense that that demand will grow even more. There’s a number of factors at play here:
- Office phone lines at corporate headquarters have been replaced with mobile phones at home offices
- Employees who may have had web browsing capabilities restricted at their corporate office have no such restrictions at the comfort of their home
- More companies are offering to pay for high-speed internet service to ensure employees have good connectivity when they work from home
- Companies are looking to build out additional infrastructure to help with employee productivity monitoring as more employees work from home unsupervised
Just like data centers are owned and operators by publicly traded companies, so too are communication towers. the two biggest players in the industry, American Tower Corporation (AMT), and Crown Castle International (CCI) are two of SRVR’s top holdings.
Reasons against SRVR?
While we think SRVR is an excellent long-term investment to benefit from the stay-at-home economy, there are certain drawbacks. Chief among them is its expense ratio, at 0.60% SRVR is much more expensive than a passive REIT like VNQ, from Vanguard (0.12%). However, 0.60% is not outrageously expensive for access to a more concentrated, niche, ETF like SRVR.
Speaking of concentration, that represents another risk for SRVR; more than 75% of the ETF’s assets are concentrated in the top 10 holdings. But here we’d point out, that while SRVR is highly concentrated, it does so in very reputable names. In fact, SRVR and VNQ share 5 of the same top 6 holdings. It’s just that SRVR’s is a larger allocation. For example, SRVR has 16% of its assets in AMT compared to VNQ which has 8.80% in AMT.
SRVR isn’t a suitable investment for everyone. But if you have a higher risk-tolerance, and are actively thinking about how the economy might change long-term as a result of the pandemic, then SRVR is worth a look. By owning it, you’re not straying too far from a more passive vehicle like VNQ, you’re just paying a bit more and getting less diversification. But if demand for data centers and communication towers continues to grow, an ETF like SRVR should stand to benefit.
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