The popularity of investing in listed infrastructure has risen significantly over the last few years. New factors are set to drive demand even further and we believe that it is inevitable that global listed infrastructure will be recognised as its own unique asset class. We view the asset class as being at a similar stage of its development to where real estate investment trusts (REITs) were in the 1980s.
We believe that the question investors need to ask themselves is whether they are comfortable waiting for this to happen – or do they want to invest now and benefit from the factors that have the potential to drive strong performance for global listed infrastructure in the coming years?
It’s very likely that in the 1980s investors were grappling with a similar issue about REITs as they now face with global listed infrastructure – would investing in listed property companies really catch on? And would the REIT market become an asset class in its own right? However, several decades into the growth of this market, most investors would now agree that REITs are indeed an asset class of their own and, most importantly, if you had waited until they had been widely accepted as having this status, you would have missed out on a huge investment opportunity.
What’s likely to fuel the growth in global listed infrastructure? Here’s 6 of the big ticket items
1. Infrastructure investing is set to rise
McKinsey estimate that $57 trillion needs to be spent on infrastructure globally by 2030. This huge secular growth will provide specialist investors lots of opportunities. In the developed world, ageing and obsolete infrastructure needs to be replaced and upgraded, whereas the emerging markets need to build infrastructure for the very first time.
2. Stable cashflow growth
Infrastructure companies often are highly regulated or have very long-term “take or pay” contracts which guarantee cashflow for up to 20 years. This means that listed infrastructure companies were able to grow their cashflow through both the dotcom bubble burst and the global financial crisis.
3. Attractive and secure yield
Because of the secure cashflow growth that listed infrastructure companies can generate, this allows them to pay out high and growing dividends to their shareholders. Dividend yield is very attractive when compared to bonds or global equities.
4. A global fund allows you to invest in the best opportunities worldwide
By our definition, Australia has less than 10 listed infrastructure companies, but worldwide there are around 300. By investing globally, you can access the best companies and also gain access to themes worldwide that are unavailable in Australia, such as US Energy independence or mobile phone towers.
5. A liquid way to play a very illiquid asset class
By investing in a global portfolio of large, liquid stocks, investors can benefit from immediate exposure to some of the best infrastructure companies worldwide in a diverse set of sectors and regions. This replicates a portfolio of direct infrastructure assets in a liquid, listed environment.
6. Investors are allocating away from global equities and fixed income
We are also seeing investors who have large low-returning holdings in fixed income looking to global listed infrastructure as a way to enter equities in a relatively safe and defensive way. We also see investors allocating to listed infrastructure as a low-risk bedrock to their global equity exposure.
