How you can benefit from the global need for infrastructure
Even though monetary policies are currently being tightened, governments are announcing more fiscal programmes. These programmes aim to increase energy independence and curb inflation in the long term. Not only has President Biden passed a slimmed-down version of his Build Back Better programme, but the recent Inflation Reduction Act will also benefit US businesses. Such plans are not confined to the US either, take the EU’s Green Deal and Repower EU initiatives or China’s ambition to be fully carbon-neutral in 2060.
The infrastructure sector will play a crucial role here. Infrastructure offers investors long-term opportunities to profit from the need for new and improved infrastructure around the globe. And the sector contains much more variety than is often assumed. In addition to spending on traditional infrastructure projects for improving e.g. (toll) roads, airports and ports, large sums are being invested in modern infrastructure requirements. These include the transition to clean energy, with investment in wind and solar farms. Yet electricity grids are also crucial. Then there is the ambition of making 5G networks available to everyone and all the masts and cables that this entails.
Government investment alone will not suffice to realise all these future plans: large amounts of private sector capital will also be required. Listed infrastructure companies are naturally keen to be involved in these projects and this generates a wide range of opportunities for investors.
Listed infrastructure companies offer investors an opportunity to invest in a number of megatrends that are shaping the world, including the low-carbon transition, digitisation and globalisation. In light of these megatrends and the growing and ageing global population, it is estimated that about 75% of the infrastructure that will be finished by 2050 does not yet exist.
Although infrastructure is a common topic of discussion these days and it has multi decade growth path, it remains a fairly new asset class to most investors. What is striking is that this sector is up 10%¹ on the market this year, while most other asset classes have dropped in price (-8%¹ for the MSCI global index). So what has changed? Not the characteristics of the sector, they are exactly the same. What we are seeing is a clear shift in the preferences of investors. Although infrastructure has always provided a hedge against inflation, the soaring inflation of the last couple of quarters has suddenly made this aspect relevant. Moreover, while infrastructure has always enjoyed a defensive profile, investors are now more actively seeking ways of protecting their portfolios.