The term “unexpected” has become a staple of the New Normal environment. The macro backdrop for global markets remains as unpredictable and uncertain as ever. Investors can attest to a high level of uncertainty that has persisted for a number of years. In our view, listed infrastructure is well-positioned to offer attractive returns to investors, with less risk to the variability of their earnings than general equities.
Non-cyclical demand fuels late-cycle growth potential
In this uncertain environment, we believe listed infrastructure offers investors a higher level of certainty and predictability by providing consistent cash flows, which are relatively unaffected by unexpected macro events. The main drivers of listed infrastructure’s relative stability and growth potential are:
- Consistent organic growth which is driven by the ongoing need for companies to invest in existing infrastructure assets which are uncorrelated to the macroeconomic outlook
- Demand for new renewable energy infrastructure to support global decarbonization initiatives
- Accelerating data growth and the need to expand communications infrastructure to meet consumer demand
Organic growth from upgrading aging infrastructure
Listed infrastructure companies in the developed markets own an estimated $6.1 trillion1 in infrastructure assets globally. We estimate that these companies will spend $200 billion annually, upgrading, replacing, and expanding their existing assets. On the asset base of $6.1 trillion, that means an annual growth rate of 3.2%. This growth rate is organic and repeating and undertaken regardless of the next uncertain macro event.