Modern society depends on daily access to effective and accessible infrastructure systems. Everything from roads, bridges, and railroads — to water, electricity, and communication networks, keeps our everyday lives — and our economies — humming along productively. Let’s take a look at why infrastructure stocks provide a compelling opportunity for investors in 2022 and beyond.
What are infrastructure stocks?
Infrastructure investments are very diverse. Spanning a broad range of industries, the infrastructure market is diverse and includes the utilities, materials and energy sectors. Infrastructure includes the physical structures as well as other essential and foundational services that connect society and facilitate its orderly operation. Both private and public companies provide the necessary underlying frameworks for everything, ranging from energy production to waste management, which governments, corporations and households require in order to operate and complete everyday tasks.
Explore Investing in Infrastructure
Infrastructure stocks are usually divided into two main categories:
- Economic infrastructure, which includes transport, utilities, and communications; and
- Social infrastructure, which includes education, health, and community facilities.
Within these broader categories, infrastructure investments are often classified depending on their stage of development:
- Growth infrastructure, also called “greenfield” investments, are the new facilities that require development and operation.
- Mature infrastructure, also known as “brownfield” investments, refer to existing, but ageing structures that require rehabilitation.
Mature infrastructure generally provides stable, long-term, income-oriented returns, while growth infrastructure can offer material capital appreciation potential.
As you can see, there is a lot of opportunity for diversification of infrastructure investments in your portfolio.
Why invest in infrastructure?
Due to their unique status as “evergreen” necessities, infrastructure services and the companies which provide them, are in a unique position to claim more resilience and less vulnerability to market ups and downs. Because infrastructure services are so essential for modern daily life, demand for them tends to be relatively consistent even during volatile economic times.
Indeed, over the past year, the infrastructure sector outperformed the broader US stock market, which has continued to experience much volatility. Investors looking for assets which could better weather the storms, fled from growth stocks such as tech, and into safer havens such as utilities. With rising interest rates and geopolitical tensions affecting the equities market greatly, some analysts are urging investors to consider infrastructure stocks.
In it for the long haul
While finding relatively stable places to put your money gets more attention when markets are uncertain, infrastructure investing is hardly a passing trend. We won’t stop needing infrastructure anytime soon — in fact, we need more. Populations around the globe are expanding and companies responsible for providing basic services must keep pace. In addition, both the private and public sectors are increasingly understanding the need to develop cleaner, environmentally friendly infrastructure solutions, which requires increased innovation as well as resources. And governments are responding by allocating the necessary funds.
Increased spending budgets have put the spotlight on infrastructure as a compelling investment opportunity for the coming years. In early November, the US government passed a much-anticipated trillion dollar infrastructure bill and the markets reacted with a surge in prices for infrastructure industry stocks. This historic legislation will enable the ambitious American vision for a broad infrastructure overhaul — including lower emission transportation, a clean energy power grid, safer water and improved Internet access — to become a reality, creating 2 million new jobs per year over the next decade. More recently, the European Union announced its plan to invest €800 million in clean energy infrastructure projects, sparking a rally in renewable energy stocks.
These are but minor examples of a broader trend that experts expect will continue to unfold as these proposals become practical reality. As the saying goes: “Rome wasn’t built in a day” — infrastructure projects, while not quite as lengthy today as they once were, are still long-term endeavours. Therefore, investments in infrastructure are best viewed as long term as well.
As governments around the world take this long-run approach, deeming infrastructure a worthwhile investment for their money, many investors seem to agree.
Making infrastructure investing easier
While there may be many advantages to investing in infrastructure, there are also some significant barriers for retail investors. Given its strategic importance and high costs, the realm of infrastructure has traditionally been the domain of government and, therefore, not always easily accessible to private investors. And, although the diverse nature of the infrastructure market offers plenty of asset diversification, it can be overwhelming to the average investor to have to choose which assets to invest in.
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