2020 has reminded us that one of the few ways to prepare a portfolio for the unexpected is to seek exposure to industries that our societies rely on for their functioning and are also less exposed to the economic cycle. In that sense, there are some key considerations to why we will continue to back digital infrastructure when the threat of COVID-19 recedes.
All things ‘digital’ have been the darling of debate and media coverage in 2020, which is unsurprising given most of the developed world has lived life virtually this year.
You could be forgiven for thinking the explosion in interest is transient and will settle when a semblance of normality returns. For us though, this year has spotlighted and rapidly accelerated a structural trend which has long been in the works: the world is becoming increasingly digital across almost all aspects of life and the communication infrastructure supporting is integral for its smooth functioning.
Digital infrastructure has both proven its inextricable ties to work, home and social lives and demonstrated it is a central – not peripheral – support to those fundamental elements of life. It has long been our view that this is the case and will remain as such. Here are some core reasons we believe the investment appeal of digital infrastructure will continue to grow, even in a post-pandemic state:
1. Our reliance on digital infrastructure is clear
Digital infrastructure assets underpin the virtual living and working environments we’ve become accustomed to. That connectivity doesn’t exist without key assets such as data centres, fibre and telecom towers. As such, if you believe in an interconnected world, you’re effectively backing the spaces and services which facilitate it.
There are almost countless examples of the corporations and governments backing this position. Most recently, the NSW government in Australia committed $700 million to expand the state’s digital infrastructure, stating: “COVID-19 has shown up just how important it is to have the digital infrastructure and the skills to match for a modern flexible society.” 1
2. Demand for data has skyrocketed
COVID-19 has accelerated the move online by 3-4 years according to a survey by McKinsey2 which highlighted the significant increase in the percentage of consumer interactions that are now digital. The increase in digital products and services has shown an even larger increase as many businesses have had to completely reinvent themselves due to the pandemic.
Remote working, virtual communication and enterprises embracing the cloud has resulted in a surge in data usage, which has required much higher demand for space and capacity at data centres – either directly by enterprises or indirectly through the use of cloud providers such as Amazon’s AWS and Microsoft’s Azure.
Whilst life will return to normal, there have been numerous shifts in behaviour and attitudes to working, consuming and interacting with others. Therefore, it is essentially a certainty that data usage will continue to grow rapidly on the back of further adoption of digital as both businesses and consumers experience the benefits in terms of cost, efficiency and service across many sectors in the economy.
3. The technologies of tomorrow are a priority
Notwithstanding some operational challenges with physical distancing, the race to 5G has also continued. The new technology is expected to dramatically increase speeds, capacity and facilitate the technologies of tomorrow such as widespread IoT, autonomous vehicles, AR/VR and several others.3
This is especially supportive for the tower sector, as a significant amount of capex will be deployed by carriers as they build out nationwide 5G networks. This is being seen globally, as telecommunication companies are investing billions in, and pinning a chunk of their growth prospects, on the 5G network. This is inclusive of Australia’s two largest telecommunication companies, Telstra4 and Optus.5
Subscribe below to Institutional Edition to receive my latest articlesJason Aront, Portfolio Manager/Analyst
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