Are you in for investing in infrastructure?

INVESTORS are always looking for the next big thing... and no more so than today when the coronavirus crisis has seen equities tumble and savings rates hit the floor.

Ironic then how that most ancient form of wealth, gold, recently went through the $2,000 an ounce barrier before easing back slightly.

Bitcoin is at incredible levels – one bitcoin is currently worth around £8,500.

FAANG – Facebook, Amazon, Apple, Netflix and Alphabet (Google), plus the likes of Tesla – are stocks in huge demand, individually worth more than the entire GDP of some countries.

ESG (environment, social and governance) is sure to have a big role in the future of the planet.

Yet there is another interesting player. Infrastructure, alongside a renewable energy bias and the ESG connotations that go hand in hand, seems to make sense with a medium to long-term view.

We are talking airports (admittedly hard hit recently to say the least), ports, toll roads and the likes, many of which seem to have performed relatively well in these tough times.

Nothing remarkable about this, you might say. After all, roads go back to the Romans. International railways, ports and city development were core ingredients of investor portfolios in the 19th century, as are stocks and bonds of utilities and transport companies since the privatisations of the 1980s.

Australia claims to have invented the new, dedicated infrastructure asset class in the 1990s, quickly followed by the rest of the world. Having had the chance to build up a bit of a track-record, it has arguably come of age in a low interest-rate environment, given investment characteristics such as long-term, stable cash flows, downside resilience, low correlation to business cycles, and partial inflation-hedge.

Making the case, Alex Araujo, fund manager at M&G Investments, told IFA Magazine: “Infrastructure holds an important place in the fabric of modern society, serving as the backbone of the world economy. In its broadest sense, infrastructure refers to assets associated with the provision of essential services for the functioning of global society such as utilities and transportation networks. These types of businesses typically provide stable and growing cash flows, often backed by inflation-linked revenues and the predictability derived from longterm contracts.

“The attractions of investing in listed infrastructure companies include liquidity, access for retail investors to invest in the asset class, and higher yield and lower volatility relative to global equities.

“We have observed huge amounts of private capital going into global infrastructure projects and assets over the years. These are investments by the likes of sovereign wealth funds, pension funds, endowments and insurance companies. Listed infrastructure is not limited to defensiveness; the asset class offers a wide array of growth opportunities to drive inflation-beating returns over the long term.”

Jesse Griffiths and María José Romero, of the European network on debt and development, are unconvinced, claiming fundamental flaws.

In a 2018 paper criticising the G20’s promotion of infrastructure as an asset class, they state: “Infrastructure projects are inherently risky and frequently unprofitable, which makes them unattractive to investors.

“Privately-financed infrastructure often ends up costing the public purse in the shape of bail-outs, subsidies or risk guarantees, as countless examples of failed Public Private Partnerships (PPPs) can testify.

“There are many reasons why an infrastructure asset class is a bad idea – not least because it assumes that infrastructure investments are simply another type of tradable asset. It ignores the uncomfortable fact that they are physical, concrete buildings, bridges, clinics or water pipes, which millions of people rely on in their everyday lives.”

Nevertheless, we believe infrastructure could well be right to include in a diversified portfolio. Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk The views expressed in this article should not be construed as financial advice