SRVR: A Contrarian Play on Data Infrastructure's Resilient Future

The Pacer Data & Infrastructure Real Estate ETF (SRVR) has long been a barometer for the data infrastructure sector, yet its performance has lagged behind the explosive growth of the industries it tracks. As of June 30, 2025, SRVR's five-year annualized return of 0.18% pales in comparison to the sector's surging demand for AI-driven compute power, 5G expansion, and IoT adoption. This disconnect between fundamentals and performance raises a critical question: Is SRVR a contrarian opportunity for long-term investors, or a cautionary tale of structural misalignment?

Sector Fundamentals: A Gold Mine of Growth

The data infrastructure sector is in the throes of a renaissance. Global data center vacancy rates have plummeted to 6.6% in Q1 2025, with markets like Northern Virginia, Tokyo, and São Paulo experiencing record net absorption. AI training workloads and hyperscale cloud demand are driving multi-megawatt preleases, while power constraints are pushing construction timelines to 2027. Pricing trends reflect this scarcity: Northern Virginia's rents surged 17.6% year-over-year, and Amsterdam's data center prices rose 18%.

SRVR's holdings—Digital Realty (DLR), American Tower (AMT), and Equinix (EQIX)—are at the epicenter of this boom. These companies derive 85%+ of revenue from real estate operations, with Digital Realty's FFO growing 12% in 2024 alone. Yet SRVR's 13.81 P/FFO ratio and 2.68% dividend yield suggest the market is undervaluing these assets. Why?

SRVR's Structural Weaknesses

SRVR's underperformance stems from three structural flaws:
1. High Expense Ratio: At 0.55%, SRVR's fee ranks in the 61st percentile among U.S. equity ETFs, eroding returns in a sector where margins are already thin.
2. Concentration Risk: The top five holdings account for 75.65% of the portfolio, leaving it vulnerable to sector-specific shocks. For example, a slowdown in hyperscale demand could disproportionately impact Digital Realty and Equinix.
3. Passive Indexing: The Solactive GPR Index's market-cap weighting locks SRVR into overexposure to large incumbents, even as disruptive players like NextDC (4.74% weight) and GDS Holdings (5.82%) struggle to scale.

Contrarian Case for SRVR

Despite these flaws, SRVR's structure may be its greatest strength. The ETF's focus on data and infrastructure REITs—companies with durable cash flows and inelastic demand—positions it to benefit from secular trends. For instance, American Tower's 14.36% weighting in SRVR reflects its dominance in 5G tower infrastructure, a sector expected to grow at 15% CAGR through 2030.

Moreover, SRVR's 2.68% dividend yield offers a compelling income stream in a low-yield environment. While its P/FFO ratio of 13.81 is higher than the 10-year average of 12.5, this premium reflects optimism about future cash flows rather than overvaluation.

Investment Thesis

SRVR is a buy for long-term investors who believe in the sector's structural tailwinds:
- AI and Cloud Computing: Data centers are the “factories” of the AI era, with hyperscale demand expected to grow 20% annually.
- Geographic Diversification: SRVR's 62.9% U.S. exposure is balanced by emerging markets like Santiago (23% inventory growth) and Mumbai, where demand is outpacing supply.
- Defensive Characteristics: REITs historically outperform during inflationary periods, and data infrastructure's inelastic demand makes it a hedge against macroeconomic volatility.

However, investors must accept SRVR's volatility (19.3% annualized over one year) and its reliance on a narrow set of companies. Diversification across data infrastructure stocks like CyrusOne (CONE) or global peers could mitigate this risk.

Conclusion

SRVR's weak performance is a symptom of its own success: the ETF is a mirror of a sector that has outgrown its traditional metrics. For contrarian investors, this mispricing represents an opportunity to buy into the infrastructure of the digital age at a discount. While the road ahead is bumpy—tariff risks, power constraints, and regulatory headwinds remain—the long-term trajectory of data infrastructure is unambiguous. SRVR may not be a glamour pick, but for those with a 10-year horizon, it offers a unique blend of income, growth, and exposure to the backbone of the global economy.