Global infrastructure and the exchange traded funds (ETFs) that track the sector are gaining attention from investors and advisors, as high returns and low correlations to other markets could be in the offing down the line. But whether the sector is a new asset class or just a fad is a matter of debate.
Investments in global infrastructure include toll roads, airports, utilities and highway maintenance are in such need they are prompting new products to be launched by providers. Many advisors like infrastructure for the low volatility they introduce to a portfolio, reports Susan B. Weiner for Advisor Perspectives.
A 2007 study by the Pension Consulting Alliance found a number of factors that could support the argument that infrastructure investing is more than just a fad, including:
- Infrastructure employs capital intensive assets with 25- to 99-year concession agreements
- Revenues are typically linked to the consumer price index
- Exposure to commodity prices is limited, thereby lowering volatility
Many of the global infrastructure indexes are greatly uncorrelated to major asset classes, both globally and within the United States. Furthermore, if infrastructure does become privatized, investments are in a good position to earn many rewards. Federal, state and local governments are all suffering from widening deficits, so privatization may not be far off.
ETFs that could be affected:
- iShares S&P Global Infrastructure Index (IGF), down 26.1% year-to-date
- SPDR FTSE/Macquarie Global Infrastructure 100 (GII), down 19.9% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.