Why Infrastructure Is A Pillar Of Successful Portfolios
Real assets are a relatively new buzz-word in financial circles and one you need to know about. They are tangible assets like natural resources, real estate, and infrastructure and attractive to money managers for several reasons. Real assets can produce high levels of current income and reduce risk within a portfolio.
Within the real assets space, infrastructure is of particular interest because the world’s population is growing and infrastructure spending is needed in both developed and emerging markets. In the developed world aging and obsolete infrastructure needs to be replaced while in emerging markets the need is for expansion of first-generation services to meet the demand of rapidly urbanizing populations.
Infrastructure includes a wide range of equity assets that have three things in common; they tend to have higher than average yield when compared to the S&P 500, they are known to reduce volatility within a portfolio because they operate in tightly regulated markets, and they provide protection from inflation because revenue and earnings are tied to the dollar (or local currency).
Energy is a great sector for infrastructure investment if you shy away from the drillers and producers and focus instead on pipelines, refineries and other mid-stream operators. MLPs are a great choice in this respect as they are set up to do one thing, pass on their earnings to shareholders. The utility sector is another attractive choice within the infrastructure space that delivers high income and a chance for diversification among electric, gas and water providers.
An interesting addition to your infrastructure portfolio is toll roads if you have access to them as an investment. Many of Europe’s largest highways are privately maintained toll roads that investors can own, and is only one example of the opportunities that are available with global listed infrastructure. One way our readers can access this market is through an ETF or CEF like Brookfield’s Global Listed Infrastructure Income Fund that is focused on the sector.
The Global Listed Infrastructure Income Fund (INF) is a closed-end fund that invests in listed infrastructure equities around the world. The fund is focused on delivering high amounts of current income with a secondary goal of capital appreciation. The fund’s distribution is paid on a monthly basis which is great for income-focused investors and yields about 8% with shares trading near $12.00. The portfolio is heavily weighted toward the US (about 50%) and MLPs (about 20%) but is well diversified across sectors and nations.
Regardless of your choice of investment vehicle, infrastructure and globally listed infrastructure are a good addition to any portfolio. Infrastructure adds diversification, it brings high income and provides a level of protection not seen with common equities.