How attractive can infrastructure ETFs be going forward? Global demand for infrastructure is poised to accelerate over the next decade or so, in both developed and developing markets:
- In advanced economies, infrastructure asset investment is projected to almost double, to more than $50 trillion over the next 15 years, to meet maintenance, capacity and upgrade needs.
- Emerging market economy infrastructure assets are expected to almost triple – to more than $60 trillion over the next 20 years– due to population growth and urbanization.
- Over the past 15 years, for every 1 percent of GDP spent on infrastructure, societies potentially get back about 1.2 percent in additional growth over time. Economies want, and need, this stimulus.
- Increasingly tight government budgets globally should lead to more private sector roles in providing these essential services going forward. Private financing is ready, and waiting.
Much has been made of President Donald J. Trump’s promise to invest $1 trillion on U.S. infrastructure projects, one of the few ideas that enjoys bipartisan support with Congress. This could create momentous governmental stimulus and spur GDP growth. It could also lead to more opportunities to deploy pent-up private capital for U.S. infrastructure investment, but it likely will be at least a year before private equity and debt investors can engage. If successful, this should lead to many other investment opportunities over the next 10 years.
Related: Are Infrastructure ETFs Still a Good Investing Idea?
Regardless of the pace of political developments, we suggest retail investors consider focusing on the potential benefits that a global listed infrastructure ETF allocation can give their portfolios, now: potential solid income and growth, diversification, inflation management and lower volatility, all combined with the lower costs and tax advantages of ETFs.
Richard Elmslie is Co-Chief Executive and Co-Chief Investment Officer at RARE Infrastructure, a Legg Mason affiliate. His opinions are not meant to be viewed as investment advice or a solicitation for investment.