By Tyler Wilton, DWS
Our unique approach to infrastructure investing is focused on “pure-play” infrastructure, where the majority of company value is derived from owning and operating physical assets that are essential for economic or social needs. A “pure-play” focus is essentially designed to replicate investment characteristics of private (i.e. direct) infrastructure investing (read more on pure play companies: Infrastructure investing 101).
The “pure-play” listed infrastructure asset class provides investors a unique opportunity, such as:
- Strong absolute and relative long-term performance
- Attractive and stable dividend income
- Low volatility compared to other cyclical asset classes
- Liquidity and diversification; low overlap compared to broader global equity markets
- Direct and indirect inflation hedge
Infrastructure outlook & relative valuations
From a macro perspective, we believe the probability of a recession is unlikely, but the current cycle may be approaching “overextended” territory. The chart below highlights where the current recovery stands in the context of the overall economic cycle compared to previous post-recession recoveries since 1953 for the S&P 500 Index. The chart below suggests that the late cycle economy we are in today may potentially reduce forward-looking equity returns (according to the historical trend-line), which supports shifting a portfolio towards defensive equities such as infrastructure.