Listed Infrastructure: growth driven by multi-decade trends

Critical to modern society and tomorrow’s world

We rely on infrastructure assets every day, often without thinking about them. They are critical to the functioning of the modern society, providing us with a wide range of essential services such as water and electricity. They include the roads and airports that enable us to travel, social institutions such as schools and hospitals, as well as the networks that allow us to communicate and make electronic payments.

Not only are infrastructure assets critical for everyday activities, we believe they are also going to be an essential part of tomorrow’s world. Infrastructure is arguably going to be central to our ability to respond to future trends such as urbanization, demographic and social shifts, water and waste management demands and universal connectivity.

Instrumental in tackling climate change

Importantly, infrastructure will also be at the heart of the solutions to some of the world’s most pressing issues. As the infrastructure sector is responsible for nearly half of global greenhouse gas emissions, it will be instrumental in tackling climate change. Billions of dollars are expected to be spent in the coming years to help the global economy decarbonize.

Utility firms, in particular, will have an enormous part to play in the transition to a cleaner, greener world, by investing in renewable energy sources such a wind and solar. Infrastructure companies will also be involved in supporting the shift to cleaner modes of transport though the roll-out of electric-vehicle-charging networks. These are just two areas where we anticipate infrastructure solutions will be essential to achieve a more sustainable world.

In our view, infrastructure is a unique and exciting asset class that offers investors exposure to powerful long-term themes. Whether they are energy companies reducing their carbon emissions or technology firms developing the infrastructure for an increasingly digital world, many infrastructure companies are in the vanguard of change, investing in innovation and new developments that are needed for environmental and social progress.

Inflation protection

By virtue of the long-life nature of infrastructure assets, investing in infrastructure companies can often offer the potential for attractive long-term income streams. Firms typically agree to provide essential services on long-term contracts which provides them with a reliable income. In many cases, the contracts will also include that revenues are linked to inflation.

As a result, infrastructure companies have frequently benefitted from steady and growing cashflow streams, which have often been used on an annual basis to pay higher dividends to shareholders. In an environment of high inflation, we believe that a growing dividend payment represents a valuable protection against the eroding effects of rising prices.

Structural trends

While inflation protection is a potential feature of investing listed infrastructure companies, we believe that the asset class also benefits from long-term structural trends such as the deployment of renewables and digital connectivity which could be sources of growth, even if inflation were to come down.

With the potential for reliable and growing cashflows as well as scope to benefit from environmental and technological developments, we believe that infrastructure represents an attractive long-term investment opportunity that can play an important role in investors’ portfolios.