Many investors are attracted to the unique characteristics of infrastructure investments, including the long-term and often inflation-protected nature of infrastructure's underlying cash flows.
At the same time, the number of potential investment opportunities within this asset class has also grown, as governments worldwide increasingly identify the need to replace, upgrade, build or privatise infrastructure assets.
At a time when many investors are looking beyond traditional asset classes to diversify their holdings, infrastructure securities may provide attractive opportunities.
What is infrastructure investing?
Infrastructure provides essential products or services which are necessary to support economic and social activity. The best-known types of infrastructure include electricity, gas and water utilities, energy pipelines, airports, toll roads, seaports and communications infrastructure.
Infrastructure typically has a strong strategic position (such as monopoly or duopoly). This is because significant capital is usually required to construct the assets, resulting in high barriers to entry for would-be competitors. As substitutes may also be hard to find, infrastructure faces less competition than most assets and may therefore enjoy more predictable cashflow and growth.
Demand for the essential products or services provided by infrastructure may be more stable and less sensitive to changes in price than non-essential products or services.
Income from infrastructure typically comes from either:
- a return on assets determined by a utility regulator ( eg water, electricity, gas)
- long-term contract (eg oil and gas pipelines)
- patronage and user charges (eg toll roads, airports), or
- a combination of the above.
Infrastructure assets have long useful lives. The regulatory contracts or concessions underlying these assets aim to provide the owner of the infrastructure with a return over time in the form of relatively predictable and stable cash flows, which may be linked to inflation.
The dividends of infrastructure companies are generally backed by the relatively stable and predictable cash flows of the underlying infrastructure assets.
An infrastructure managed fund can provide access to a global portfolio of listed infrastructure securities, diversified across a wide range of countries and infrastructure sectors.
Talk to your financial adviser to learn more about infrastructure funds and whether they may be right for you.
