Getting exposure to the real estate market requires a more creative slant given the challenges in residential and commercial real estate. One area investors may not have considered in the burgeoning tech arena is real estate that caters to data centers.
With technology permeating various business sectors, housing data will be imperative. Research companies are already projecting massive growth for these companies that serve the data centers market.
“In January 2023, McKinsey & Company projected the industry would grow 10% a year through 2030, with global spending on the construction of new facilities hitting $49 billion,” a Forbes article mentioned. “That forecast sounds low to me. After all, data centers have upended the plodding 2% to 3% growth model for utilities. And the data center hyperscale market is projected to grow 20% annually. No wonder investors are paying attention.”
To capture this growth potential, an option is to look at real estate investment trusts that focus on this niche corner of the real estate market. Rather than look at individual stock holdings, consider ETFs that not only provide diversification, but have an active component to address volatility in the real estate market.
An ETF to Consider REIT Now
As the world gets increasingly reliant on digital technology, Equinix is a name that focuses on the buildout of infrastructure for data centers. That company is the top holding found in the ALPS Active REIT ETF (REIT). Equinix constitutes just over 10% of REIT’s allocation as of March 6. Therefore, the real estate company will have a tangible impact on the performance of the fund. With the company’s focus on data centers, its growth trajectory is promising.
One of the attractive features of REITs is their fixed income opportunities. REIT has a 30-day SEC yield of 3.61% (as of February 29). And this ETF can help supplement a fixed income investor’s portfolio. It can also help get potential price appreciation from the real estate market, which could happen once the Federal Reserve starts cutting interest rates.
REIT comprises common equity securities of U.S. REITs. It also includes the common equity of U.S. real estate operating companies not structured as REITs, preferred equity of U.S. REITs, and real estate operating companies. As mentioned, the active strategy component lets experienced portfolio managers handpick the fund’s holdings. This maintains necessary flexibility in the current market, in which holdings can be adjusted when macro- or microeconomic conditions warrant a change.
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