Infrastructure can help investors grow their wealth, diversify portfolio returns, and better match long-term liabilities to assets. (UBS)

CIO believes infrastructure investments can offer an appealing addition to a well-diversified portfolio, with attractive returns and relatively low correlations to equities and bonds.

Infrastructure can benefit from upgrades, net-zero investment, and government support.

  • CIO expects about USD 40–50tr of global energy transition investments in the years 2021–30, in support of net-zero efforts.
  • Policies like the US Inflation Reduction Act and the EU Green Deal Industrial Plan demonstrate government support for infrastructure.

Infrastructure can offer an appealing addition to a diversified portfolio.

  • The three main infrastructure strategies for investors are core/core-plus, value-add, and opportunistic.
  • Core and core-plus are typically lower-risk investments that deliver income from mature assets. As risk rises up to opportunistic investments, potential returns should increasingly come from capital appreciation.
  • Common infrastructure characteristics include high barriers to entry, pricing stability as demand changes, and consistent cash flows linked to inflation.

Long-term exposure to infrastructure can help achieve financial goals.

  • We expect core/core-plus infrastructure to deliver returns of 7% annually with volatility of 9% over the coming years (based on Cambridge Associates LLC Infrastructure Index).
  • Infrastructure also exhibits strong diversification potential in portfolios, historically moving 0.3% and 0.14% for every 1% move in global stocks and US investment grade debt, respectively.
  • Infrastructure returns have shown a modest positive correlation of 0.2 to US consumer price inflation since 2000.

Did you know?

  • The International Energy Agency (IEA) estimates that the global market for key mass-manufactured clean energy technologies will reach a value of about USD 650bn by 2030, more than triple today's level.
  • Emerging Asia needs to invest USD 1.7tr in infrastructure each year from 2016 to 2030 to remain competitive, according to the Asian Development Bank.

Investment view

Infrastructure can help investors grow their wealth, diversify portfolio returns, and better match long-term liabilities to assets. We see value in well-diversified private market vehicles. We currently favor core/core-plus strategies with a tilt to defensive assets and whose returns depend on long-term inflation-linked contracts. Investors should be aware that infrastructure investments are typically long-term and subject to illiquidity and longer breakeven periods than other private markets. On a tactical horizon, we like US industrials as a means to express this theme.

Main contributors - Matthew Carter, Vincent Heaney, Jennifer Stahmer

Original report - Can infrastructure add value to my portfolio?, 13 November 2023.