Investing in Global Listed Infrastructure Assets
Investing in Global Listed Infrastructure Assets
Neville Giles
Investment Adviser – Shaw and Partners
Global listed infrastructure assets are becoming an important part of well-diversified investment portfolios globally. As Neville Giles explains, the unique qualities of these essential real assets can help improve the quality and resilience of an investment portfolio while giving access to emerging global trends.
Global listed infrastructure assets offer investors exposure to the essential systems that support modern economies, including electricity networks, toll roads, airports, pipelines, water utilities and data centres. Listed infrastructure companies give investors a practical way to access long-duration real assets while retaining the advantages of daily liquidity, transparent pricing and the ability to adjust portfolio allocations over time.
The key differentiator from global equities is that infrastructure companies typically earn revenues from regulated, contracted or concession-based assets that provide services people and businesses use regardless of the economic cycle. Demand for power transmission, water supply, mobile connectivity or freight movement may fluctuate, but it is generally less discretionary than demand in many other sectors. So compared with more cyclical companies, infrastructure businesses will be less impacted by economic downturns.
As such, these assets generally exhibit lower volatility as compared with broader equity markets and have historically been less correlated with equity markets generally. Research from infrastructure manager Maple Brown Abbott suggested that global listed infrastructure outperformed global equities in roughly 80% of the quarters in which there was a negative global equity return – a valuable benefit in helping investment portfolios reduce drawdowns in times of equity market stress.
Income is another attraction. Because infrastructure assets often provide essential services and have high barriers to entry, they generate stable cash flows that support the payment of regular and growing dividends. In some cases, revenue arrangements include explicit or implicit inflation linkage, helping preserve the real income generated over time. This can be valuable for investors who want both growth potential and a measure of protection against rising prices.
Global infrastructure also provides a compelling entry point for investors seeking access to the decarbonisation theme. The need to reduce carbon emissions is driving substantial investment in renewable energy generation, electricity transmission, grid modernisation and more efficient utilities. As economies electrify transport, industry and buildings, the infrastructure required to connect new sources of clean power to growing demand becomes increasingly critical.
Digitisation is also reshaping the infrastructure opportunity set. The rapid growth of cloud computing, artificial intelligence, streaming and connected devices is driving sustained demand for data centres, fibre networks and mobile towers. These assets are becoming as essential to the digital economy as roads, ports and power networks are to the physical economy. For infrastructure investors, this creates exposure to long-term growth in data creation, connectivity and computing capacity, while still retaining many of the traditional infrastructure characteristics of high barriers to entry, recurring revenues and mission-critical service provision.
While infrastructure can improve portfolio resilience, investors should also recognise the key risks. Listed infrastructure assets remain exposed to equity market volatility, even if the volatility is reduced. Many infrastructure businesses are also sensitive to interest rates, as higher bond yields can reduce the relative appeal of dividend income and increase funding costs for capital-intensive projects. Regulatory and political risk is another important consideration. For this reason, careful manager selection, diversification across sectors and regions, and disciplined valuation are essential when investing in global listed infrastructure.
In summary, listed infrastructure can play a valuable role in a diversified portfolio by combining exposure to essential real assets with liquidity, income potential and defensive investment characteristics. Its lower sensitivity to economic cycles, relatively stable cash flows and potential inflation linkage can help smooth portfolio returns over time, while exposure to long-term themes such as decarbonisation and digitalisation provides an additional source of structural growth. For investors seeking resilience, diversification and access to enduring global investment trends, listed infrastructure is a compelling asset class to consider.
Interested in adding infrastructure assets to your investment portfolio? Get in touch with Neville Giles start the conversation on how NZ based investors can access global listed infrastructure assets.
Neville Giles
Senior Investment Adviser – Shaw and Partners
