Since August this year, the Australian share market has fallen almost 10 per cent. The once indefatigable property market is showing signs of wear. The Sydney market is down more than seven per cent this year while Melbourne is off almost five per cent. It is an environment which makes investing in infrastructure a more attractive option.
Why? Because infrastructure, unlike some other asset classes, offers consistent returns throughout the economic cycle, including stable yields, and revenues are linked to inflation.
Infrastructure assets provide an opportunity to take some risk out of your portfolio in times of volatile markets.
What are infrastructure assets?
Infrastructure assets provide essential services that are critical to the day-to-day operation of our society, facilitate productivity and support economic growth.
Infrastructure consists of a broad range of assets which can be grouped as follows:
- Social infrastructure: hospitals, schools, care homes.
- Energy and utilities infrastructure: power companies, water treatment plants, wind farms.
- Transport infrastructure: airports, train fleets, toll roads.
- Communications infrastructure: fibre optic networks, mobile phone towers, data centres.
The benefits of infrastructure investing
Due to the essential nature of the services they provide, there are always customers or users of infrastructure assets. People always use roads and bridges, telecommunications and energy no matter what the economic cycle. It is why infrastructure investments can provide steady returns through market cycles.
There is also another, less understood, advantage of infrastructure assets throughout the economic cycle. The revenues that infrastructure assets generate are often linked to inflation (or cost of living) increases. That makes them very steady earners.
Infrastructure also provides the opportunity to diversify your investment portfolio as it typically has relatively low correlations to other asset types such as fixed income, property and shares.
How to add infrastructure investments to your SMSF portfolio
There are two ways to invest in infrastructure, either through unlisted, physical infrastructure assets or via listed infrastructure equities.
However, there are some key differences between the two that are important to understand.
Physical, unlisted infrastructure assets offer lower volatility in terms of valuations but also feature lower liquidity (meaning they can be harder to sell should you need to).
In contrast, listed infrastructure equities are more volatile in terms of valuation as they are subject to the vagaries of the stock market but offer high liquidity (an easy ability to sell).
An alternative to both is to invest in an infrastructure fund, which in turn invests in both listed and unlisted infrastructure assets to access the benefits of each type of investment.
To learn more about investing in infrastructure, watch our recent webinar.
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.