Opportunities in infrastructure

It’s an exciting time to invest in global infrastructure. Numerous multi-billion-pound projects are underway across the world – and they’re providing lucrative investment opportunities.

And these days, infrastructure isn’t just roads and railways. It’s more accurately an umbrella term that includes areas such as state-of-the-art digital networks. This means there are plenty of companies involved. In fact, everything from building firms to those manufacturing niche products potentially stand to benefit.

Here, we look at the key developments and trends within global infrastructure, as well as some of the stocks and investment funds to consider.

Infrastructure trends

The shift to remote work and telemedicine has had big implications for the infrastructure sector, according to a survey of infrastructure trends put together by Deloitte, the professional services firm. The study found that infrastructure is going digital with many respondents expecting artificial intelligence, cloud computing, demand for green infrastructure and cybersecurity to reshape the sector*.

A separate PwC study found the sector sat at a collision point of global disruptions, including shifts in capital availability, evolving social and environmental priorities, and rapid urbanisation**. 

“Successful infrastructure delivery demands close alignment and collaboration between a wide range of participants, each with its own agenda and interest,” it stated. It also suggested the impact of the Covid-19 pandemic would take years to play out. “We believe it will reshape the industry in four ways, intensifying its focus on operational resilience, the affordability of infrastructure, the deployment of new technologies and the need for sustainability,” it added.

Funds to consider

First Sentier Global Listed Infrastructure fund

This fund invests in infrastructure-related companies around the world, including utilities, highways and railways, airports services, marine ports and services, and oil and gas storage firms.

According to the fund’s most recent monthly update***, the value of infrastructure assets can generally be expected to rise during inflationary environments. “Existing infrastructure assets become more attractive as the replacement costs increase,” it stated. “This factor gives infrastructure assets enhanced appeal during periods of high inflation.”

The fund’s largest holding of 7.5% is in Transurban, a road operator that manages and develops urban toll road networks in Australia, Canada, and the United States^.

Cohen & Steers Global Real Estate Securities fund

This fund, which seeks income and capital appreciation from a diversified portfolio of REITS and other traded real estate companies, is another way to access the infrastructure story.

It’s also geographically diversified across North America, Europe, and Asia Pacific, along with opportunistic allocations to emerging markets.

According to its most recent investment commentary***, the managers insist real estate fundamentals are sound, despite the possible impact of slower growth and higher inflation.

It also highlighted a number of areas that looked attractive, including cell towers that are benefiting from increased spending from carriers updating their networks to 5G.

“We believe companies that provide data and logistics infrastructure, including data centres, cell towers, and industrial warehouses, will continue to benefit from strong secular demand in the shift towards a digital economy,” it stated.

Schroder Digital Infrastructure

This fund, run by Hugo Manchin and Tom Walker, looks to take advantage of the ever-increasing demand for digital infrastructure and the sustainable transition to a digital economy. The portfolio is managed on the premise that demand for data seems insatiable and will require ever more digital infrastructure over the coming years.

Although the United States has the most significant geographical weighting of 48.9%, there’s broad exposure to other countries, including Spain, Australia, Indonesia, Italy, Germany, China, Singapore, and Japan^.

The largest position in the portfolio is Cellnex Telecom SA, a Spanish wireless telecoms infrastructure and services company, which accounts for 7.1% of assets under management^.
According to Schroders: “Growth in internet users, data consumption, transfer speeds, connected devices and the build out of 5G, the ‘Internet of Things’, and Edge networks all lead to an attractive long term investment opportunity.”

Janus Henderson UK Responsible Income

National Grid is one of the 10 largest holdings in this fund^. The utility giant is investing around £1.3bn every year to adapt its network and connect to new sources of low carbon and green energy.

National Grid’s share price rose almost 9% over the first five months of this year. At the start of January, it stood at £10.78 per share and by 31st May it was trading at £11.72^^. In a statement accompanying its full year results announcement in May 2022, chief executive John Pettigrew highlighted the acquisition of Western Power Distribution (WPD).

“Our purchase of WPD has pivoted our business to a much greater focus on electricity infrastructure, putting us at the heart of delivering the energy transition,” he said. “We’ve invested a record £6.7bn in critical energy infrastructure, part of our five-year £30-35bn investment programme.”

Threadneedle UK Equity Income

One of the largest investments in this fund is in 3i, the private equity and venture capital company that has a dedicated infrastructure division^. The aim of this fund, which currently has £5.1bn of assets under management^, is to generate income yield and capital returns.

More broadly, its objective is to provide an income yield higher than the FTSE All-Share Index over rolling three-year periods, after the deduction of charges.

The portfolio, which has been managed since 2010 by Richard Colwell, invests at least 90% of its assets in companies listed on the London Stock Exchange. According to the most recent fund factsheet, industrials has the largest sector weighting in the fund with 32.4%, followed by health care with 16.6% and the 14.2% in consumer staples^.

*Source: Deloitte, The future of infrastructure: A survey of infrastructure trends
**Source: PwC, Global Infrastructure Trends
***Source: Fund provider, April 2022
^Source: Fund factsheet, 30 April 2022
^^Source: National Grid, 2021/2022 Full Year Results Statement, 19 May 2022

Published on 06/06/2022