Data Center ETF Showdown: IDGT vs. DTCR in a $7 Trillion Digital Infrastructure Boom

According to a report published earlier this year by McKinsey & Company, the race to scale data centers is a $7 trillion opportunity. The noted consulting firm projects that by the year 2030, it will take nearly that much ongoing annual investment just to maintain the level of computing power needed to run all of our “stuff.” If there were a modern-age equivalent of what we used to consider the value of water, this would be it.

Why Use ETFs for Digital Infrastructure Exposure

As an avid ETF investor who has seen that investment product grow from its infancy in 1993 to become the investment vehicle investors want to learn more about, ETFs are essentially undergoing a similar “land rush” as are the public companies who own the land, build the facilities, and operate the data centers and other infrastructure that makes the world move at, shall we say, a rapid pace, these days. For ETF investors, that’s a growth opportunity they might try to ride via an individual stock or two.

However, if there’s one thing ETFs do very well, it is to aggregate these types of thematic growth situations into a passively-managed, but smartly-constructed index. That’s what most ETFs are in a nutshell. And when it comes to investing in the future of what McKinsey projects in terms of data center and related infrastructure, there are 2 ETFs investors should be aware of. And as it turns out, they are also a metaphor for an important aspect of the ETF world that investors should understand.

The Two Funds: IDGT vs. DTCR

iShares U.S. Digital Infrastructure and Real Estate ETF (IDGT) is the more tenured of the 2, the other being Global X Funds Global X Data Center & Digital Infrastructure ETF (DTCR). But that doesn’t really tell the story of this market sectors and its evolution. Between the dot-com bubble and the current AI craze, there was a relative calm for many years. Now, it is off the charts again in terms of activity.

We see this in IDGT’s holdings from 10 years ago versus now. The entire top 6 from 2015 has been replaced. That has more to do with an expanded opportunity set for this ETF. It now includes a triumvirate of companies which are technically real estate (REIT) stocks, but which are all involved in either cell tower hosting, data center land use, or both.

IDGT historical holdings. Source: Ycharts.

And as in any growth industry, there are 2 things we can count on, and both are represented here. One is mergers that take public companies off the stock market when they are absorbed into the acquirer. The other is that competition breeds failure on the part of some firms. And they are delisted from the stock exchange.

Assets, Overlap, and What Sets Them Apart

As we see below, DTCR is the much newer entrant, debuting in late 2020. As is often the case in the ETF business, when a challenger comes in with an altered take on the niche part of the stock market the ETF targets, it has the momentum and marketing emphasis to gather some assets. So, it is not atypical that DTCR has about 3 times the asset base of IDGT.

2-ETF comparison. Source: VettaFi

As the table below indicates, the 2 ETFs have quite a bit of overlap, which is evidence that they can be considered peers. However, they each have several stock holdings that are not owned by the other. This is not a case of “which one is better,” since that is a decision for each trader to determine, based on what they want from the investment.

2-ETF holdings comparison. Source: Ycharts.

Performance: Inception vs. Rising‑Rate Era

I am on record here and elsewhere as being a firm believer that errant past performance analysis is the biggest risk to many investors, especially new ones. So, why am I showing a past performance comparison of DTCR and IDGT? Because this pair is a good example of how to avoid getting fooled on this measure.

First, when we look at the performance since their common inception date in late 2020, it is no contest. IDGT has gained double that of DTCR.

2 ETF performance comparison. Source: Ycharts.

Ah, but look at what occurs when we start the clock on these 2 ETFs at the beginning of 2022. That’s when interest rates started to move up off of zero. Growth often requires the ability to continuously borrow and expand. When borrowing costs go up, it can even the playing field, as it has here, with the 2 funds nearly in lock step in recent years.

2 ETF performance comparison. Source: Ycharts.

Risk Profile: Volatility and Drawdowns

However, to me, it is primarily about pursuing returns while being fully cognizant of the risks. And since these are stocks, as shown below, they are each capable of dropping 30% in a 6-month period.

2 ETF performance comparison. Source: Ycharts.

Still, both ETFs are small in size, especially considering their managers. Global X is a prominent global ETF player, with Mirae Asset Global Investments acquisition of that US-based firm back in 2018. And as for IDGT, it is backed by the biggest asset manager on the planet, Blackrock’s iShares unit. This adds a bit of fuel to the mission of any investor or trader wanting to research these in more depth. Specifically, these may represent at times a pair of under-the-radar opportunities. And who doesn’t like to be onto something good, and early?

Technical Picture: Recent Breakouts

Technically speaking, DTCR just broke out to a new high, and that could bode well for at least a trader’s time frame.

DTCR technical chart. Source: Barchart.

And IDGT, not surprisingly, has a chart that looks substantially similar.

IDGT technical chart. Source: Barchart.

How to Decide: Subtle Differences Matter

And that’s the takeaway on these 2 ETFs. First only one of them existed, then there were 2. And for a while, they diverged in performance. However, when we analyze both performance and holdings with a more critical eye, we see that they have essentially converged. Going forward, this means investors should really focus on the subtle differences in holdings and read more from the funds themselves, to determine whether IDGT, DTCR, or neither is best for them.