After many years of unsuccessful infrastructure spending legislation in the US, we finally saw a breakthrough in November of last year. The government’s US$1 trillion-plus infrastructure plan includes approximately US$550 billion1 in new spending, targeting traditional infrastructure areas such as roads, bridges, rail, the power grid, broadband and water. When paired with the €1 trillion European Green Deal, this is a secular step up in infrastructure spend. In addition, supply-chain issues are not expected to affect infrastructure. These generational assets are, for the most part, already established and collecting rents. These businesses are generally domestically oriented and thus insulated from current supply-chain concerns.
Why do investors look to infrastructure? We believe they seek three things: defensive business models, inflation protection, and income. The last two years tested and proved both the resilience of these business models and the defensive nature of non-transport businesses. While slowing global travel affected many transport organizations such as airports and toll roads, the balance of the infrastructure sector remains relatively unscathed despite current Covid-19 headwinds. In addition, current inflationary pressures, constrained equity and fixed-income asset yields, and an increase in demand for income by aging demographics are all creating what we believe is an increasingly compelling case for investment in infrastructure.
Jim Lydotes, portfolio manager, Newton Investment Management.
1 “Here’s what’s in the $550 billion bipartisan infrastructure deal,” CNBC.com, July 29, 2021.
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