We believe listed infrastructure offers attractive long-term growth potential given the massive need for infrastructure spending and the increasing privatization of infrastructure assets.
Defining the infrastructure asset class
Infrastructure companies provide essential public services that facilitate economic growth. The group can be broken into four segments:
- Energy: The largest portion of the infrastructure universe, including power generation and transmission, and oil and natural gas pipelines
- Transportation: A diverse segment that includes toll roads, railways, airports and marine ports—assets that are crucial to global commerce
- Communications: Wireless towers and satellite systems, which stand to benefit from the rapid growth in wireless data usage through smartphones and other connected devices
- Water: Provide potable water supply and water-based energy such as dams
Stable income and growth
Infrastructure assets tend to have long life spans and stable cash flows, earning income from consumers and businesses that need their services even during times of economic hardship. Many of these companies enjoy monopolistic structures, which can enhance revenue visibility and lower financial risk. In addition, these companies are often protected by high barriers to entry, including strict zoning restrictions and substantial capital requirements.
Benefiting from massive infrastructure spending
Over the past 50 years, roads, bridges, electrical grids and other infrastructure assets have steadily deteriorated due to a decline in infrastructure investment. At the same time, usage has continued to grow, from air travel to wireless data. With many governments under intense pressure to enact austerity measures, much of this investment will likely require private capital. We believe that listed infrastructure companies with strong balance sheets and access to capital markets are well positioned to help finance these investments.
The demand for new infrastructure is even more pronounced in emerging economies. Urban growth and rising disposable incomes have far surpassed the capacity of current infrastructure assets. In many developing regions, infrastructure development is seen as crucial to maintaining rapid economic growth.
Regulatory risk and the need for diversification
Given the nature of infrastructure companies’ operations, regulatory and political risks are key factors to consider when investing in this asset class. With a portfolio of infrastructure securities—each with numerous assets—it is possible to achieve broad diversification across individual assets, subsectors and countries. This can help mitigate the risk of government intervention, as well as reduce volatility related to varying economic and market conditions within a given region.
The advantages of listed infrastructure
Investing in publicly traded infrastructure securities offers the benefits of owning tangible infrastructure assets through listed companies. These securities have the advantages of daily market pricing and a high level of liquidity relative to direct investment, especially considering the long lock-up periods and limited secondary markets for private infrastructure. Furthermore, publicly traded companies must comply with local securities regulations, including strict standards of corporate governance, financial reporting and information disclosure.
View Cohen & Steers' global listed infrastructure analysis.
The views and opinions are subject to change without notice and represents an assessment of the market environment at a specific point in time, should not be relied upon as legal, investment or tax advice and is not intended to predict or depict performance of any investment. We consider the information to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment. Investors should consult their own advisors with respect to their individual circumstances.There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that a market forecast made in this commentary will be realized.
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Risks of Investing in Global Infrastructure Securities
Investments in global infrastructure securities will likely be more susceptible to adverse economic or regulatory occurrences affecting global infrastructure companies than an investment that is not primarily invested in global infrastructure companies. Infrastructure issuers may be subject to regulation by various governmental authorities and may also be affected by governmental regulation of rates charged to customers, operational or other mishaps, tariffs, and changes in tax laws, regulatory policies, and accounting standards. Foreign securities involve special risks, including currency fluctuation and lower liquidity. Some global securities may represent small and medium-sized companies, which may be more susceptible to price volatility than larger companies.