The iShares U.S. Digital Infrastructure and Real Estate ETF (IDGT) is one of those exchange-traded funds (ETFs) that I’ve come to appreciate as being a neat, niche fund. That’s a structural comment only. Because at this point in the market cycle, one which has seen IDGT play the role of major beneficiary of the “all in/we need compute power” trade, the chart looks like money is rushing for the exits.
More on that below, after I acquaint, or re-acquaint, you with this ETF, which is REIT-like in some of its top holdings. But not the type that pays much yield.
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IDGT really tracks the health of the physical backbone supporting the artificial intelligence (AI) boom. And it does so very well. For the past two years, IDGT has been a major beneficiary of the massive capital expenditure (capex) surge.
The narrative driving it was seemingly ironclad. No matter which software or language model ultimately wins the AI race, the world will require an infinite supply of physical data centers, fiber-optic networks, and telecom towers to route and store the data.
But following a series of stark reality checks across the tech space, especially IBM’s (IBM) warning about corporate budget cannibalization and Broadcom’s (AVGO) cautious guidance, the types of stocks IDGT represents, the physical infrastructure trade, look spent.
A Closer Look at IDGT
The purple lines I drew in that daily price chart above point to two related issues. Up top, the ETF shows signs of “distribution,” which is a fancy way of saying “big money wants out, but can’t get out in one shot, so they keep dripping stock out to sell, gradually.” The moving averages reflect that.
The lower part of the chart, the PPO, had every excuse to take a pause, then rally. But as I circled, it didn’t fire. That now looks more as if the dip will be followed by more dips. Lower lows and lower highs. Not good for IDGT bulls.
This $490 million ETF is part REIT, part telecom. But the REIT side is data center and cell tower REITs, the type that are really more like tech stocks with a REIT structure. They have been darlings for a while, but it’s getting late to the party. At 19x trailing earnings, IDGT is not too cheap. And the dividend yield is a very thin 0.8%. Like I said, REITs included, but not the kind income investors flock to.
