Global listed infrastructure

The main infrastructure asset types include transportation systems like rail, airports and toll roads; communication systems like mobile/cellphone towers; and water, gas and electricity utilities. These assets are essential to the day-to-day functioning of our society. They typically offer more stable returns than many other investment options.

The key risks for infrastructure investors are political and regulatory intervention. These risks can be mitigated by diversification across countries, sectors and regulators, and by using an active manager who is able to understand and navigate those risks. Infrastructure investment funds may also be vulnerable to factors that particularly affect the infrastructure sector, for example natural disasters or operational disruption.

In short, yes! While investors have embraced infrastructure as an asset class since the 1990s, the idea of investing in infrastructure via listed securities was developed by a few Australian asset managers between 2005-2007. 

Global Listed Infrastructure (GLIS) is now widely acknowledged as a standalone asset class by asset consultants, investors and the funds management industry. Today we estimate funds under management in GLIS to stand at around US$100 billion.

It’s also worth remembering that infrastructure assets also have their own set of associated risks and return profile and structural drivers distinct from those of stocks. Notably infrastructure stocks tend to provide essential goods and services to society, which can be highly regulated and prices locked in. This means that listed infrastructure has a set of characteristics which tend to be less affected by economic growth, or lack thereof.  

Use of GLIS within investor portfolios has varied over time. Initially we saw it used as a defensive, low volatility equity. This expanded to see it used as a source of income, as declining bond yields increased the relative appeal of its growing divided streams.

More recently, we have seen listed infrastructure form part of the real assets segment of investors’ portfolios, due to the nature of its long-life, hard assets and ability to offer insulation from the effects of inflation as well as offer structural earnings growth. 

We have also seen investors utilise GLIS as a diversified, liquid and lower fee alternative to unlisted infrastructure allocations. 

You should always seek professional advice if you are unsure about your investment options. Historically, infrastructure investments have generated stable, predictable cash flows and delivered long-term growth. As part of a balanced portfolio these types of investments have tended to be less volatile than other equity classes. Due to these factors, infrastructure can be used through the economic cycle at all times as a lower volatility complement to global equities.

You will gain a little bit of exposure - but not very much. We estimate that most global equity managers may hold between 2% and 4% (or less) of their portfolio in infrastructure assets, and this exposure could be concentrated amongst a small number of large, well-known utility names. However, much of the alpha generated in our diversified portfolio has come from mid-cap stocks, which are under-researched by global equity managers, such as toll roads, oil storage, mobile towers and water utilities. Hence, if you decide global listed infrastructure suits your investment needs, then you need to make an explicit allocation in your investment portfolio in order to gain a meaningful exposure to the asset class.

No. Infrastructure assets offer defensive, non-cyclical growth opportunities from a variety of areas. These include:

• investment-driven earnings from the build-out of new transmission and distribution assets by electric, gas and water utilities

• clean renewable energy replacing carbon emitting, coal-fired electricity generation

• increasing equipment on mobile phone towers, to cope with growing data usage on smartphones

• rising traffic volumes on toll roads, as a result of urban congestion

• structural growth in global travel driving more passengers through airports and

• new energy pipelines and storage infrastructure being built to facilitate the world’s changing patterns of energy supply and demand.

To be clear, global listed infrastructure is an interest rate sensitive asset class (and I don’t profess to know the future direction of rates) but it also has defensive growth attributes.