As investors seek out yield-generating options to bolster their portfolios, one may take a look at a global infrastructure exchange traded fund to tap into a growing industry and garner attractive yields.
On the recent webcast, Infrastructure Investing for Income and Lower Volatility, Vinit Srivastava, Senior Director at S&P Dow Jones Indices, explains that the infrastructure companies generate relatively steady cash flows with a strong yield component, have a strong economic moat, are an inflation hedge and will experience growth as emerging markets expand.
The industry have long-term contracts, which means that many companies have a long-term plan in place. Additionally, once the projects are set up, the companies will enjoy high operating margins and low cost of maintenance, which can help produce steady cash flows.
The sector also has a high barrier to entry as the community is mostly monopolistic covered by regulations, Srivastava added. The high cost to setup also helps dissuade new competitors from easily entering the space.
The infrastructure contracts are also linked to inflation or they are able to pass on the inflation to consumers. The income linked to inflation, along with ability to return cash to shareholders, may act as an inflation hedge, Srivastava said.
“Global infrastructure securities may provide a lower correlation to traditional asset classes, such as stocks and bonds, and offer a hedge against inflation,” Bill Belden, Managing Director at Guggenheim Investments, said.
Looking ahead, the emerging markets are spending on infrastructure to build out their economy while developed markets are updating aging assets.