Large insurers and pension funds are turning to infrastructure investments to meet long-term liabilities, potentially reinforcing global infrastructure stocks and sector-related exchange traded funds.
Year-to-date, the iShares Global Infrastructure ETF (NYSEArca: IGF) rose 12.1%, FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA) gained 10.7% and SPDR S&P Global Infrastructure ETF (NYSEArca: GII) increased 12.2%. [Going Global With Infrastructure ETFs]
IGF tracks an index of developed market infrastructure companies. GII tracks the same index as IGF, but GII comse with a slightly cheaper 0.40% expense ratio, compared to IGF’s 0.48% expense ratio. NFRA, which has a 0.47% expense ratio, holds a broader selection of global infrastructure stocks.
Global infrastructure assets under management through unlisted funds are at $282 billion as of March this year, their highest point and almost three times higher since 2007, reports Andrew Bolger for the Financial Times.
Institutional investor demand for infrastructure assets continue to rise, with 57% of investors expected to add more into the asset class over the next 12 months, compared to the previous year, and 42% showing an interest in raising their long-term allocations. For instance, global insurance companies are increasing their infrastructure exposure to about 3% of their total assets over the next 20 years from the current 2% weight.
“Infrastructure businesses are essential and as such they enjoy considerable demand and offer long-term yield – often with inflation-linked characteristics, which is important for our clients,” Martin Lennon, co-founder and head of Infracapital, the infrastructure arm of M&G Investments, said in the article.
The infrastructure ETFs also offer attractive yields. For instance, IGF has a 2.6% 12-month yield, NFRA shows a 2.53% 12-month yield and GII has a 3.17% 12-month yield.
The steady yields help the pension funds meet their liability driven investment portfolios, which try to accumulate sufficient assets to meet all present and future liabilities.
Over the long-term, the sector offers growing opportunities as many emerging markets expand their inadequate infrastructures and developed economies update their aging infrastructure. Standard & Poor’s projects infrastructure financing needs worldwide could tota $3.4 trillion annually through 2030. [Infrastructure ETFs for Global Growth]
“Local economic growth, especially in emerging-markets countries, can drive infrastructure investments,” according to Morningstar analyst Robert Goldsborough. “In developed-markets nations, by contrast, local growth by definition is slower, but regular infrastructure upgrades often are necessary and desired.”
iShares Global Infrastructure ETF
For more information on the infrastructure sector, visit our infrastructure category.
Max Chen contributed to this article.