Infrastructure has low correlation to other asset classes, making it a promising investment.
“What’s driving the returns in these stocks is the underlying regulatory environment, and the economic activity for a lot of the infrastructure,” says Nick Langley, investment director and senior portfolio manager of RARE Infrastructure in Sydney, Australia. He manages the Renaissance Global Infrastructure Fund.
“And so, it results in [infrastructure investing] having reasonable capital protection in down markets, but getting a pretty good share of the upside in up markets.”
In particular, rail companies and wireless tower businesses are experiencing growth. “We’ve seen a move from people using road transport to putting those goods onto rail.”
This is partly because rail companies have invested in what Langley calls their “intermodal network,” which is the system of distributing goods from shipping port to delivery.
“As economic activity picks up, these are the monopoly providers of transport.”
As 4G cellular networks continue to expand in the U.S., wireless tower businesses will grow too, says Langley.
“As the telcos get more subscribers onto those networks, they need to increase the density of equipment in their network — which means they need to come to the wireless tower businesses and rent more space on the towers.”
He adds those telcos are signing up for long-term contracts, most of which are 20 years in duration.
In terms of portfolio diversity, he says, “We want to own utilities in different regions, and that helps balance the risk in the portfolio and drive what we expect to be fairly stable returns over the next investment cycle.”