Volatile global interest rates, Trump’s trade war and Brexit mean 2018 won’t go down as a stellar year for global listed infrastructure.
The year saw the asset class deliver a negative 7.9 per cent return, outperforming global equities by 0.8 per cent according to figures from Bloomberg. The absolute negative performance was largely market and sentiment driven – the underlying assets generated solid cash flows growth.
But sentiment, which worked against listed infrastructure during 2018, might be turning to aid investments in global listed infrastructure assets this year.
“We believe 2019 could represent a supportive year for the asset class as its defensive characteristics should start to appeal to investors given the recent increased volatility of global equity markets,” said AMP Capital Head of Global Listed Infrastructure Giuseppe Corona.
“Moreover, the underlying valuation of global listed infrastructure is very attractive as investors worldwide can now access a portfolio of core infrastructure assets at or below 11x EBITDA and around a 5 per cent dividend yield.”
Sectors which look particularly attractive in coming years are telecommunications, utilities, transport and energy.
“Increased data usage and need for industry rationalisation will continue to drive communications infrastructure, while investments in the utilities sector will be supported by higher penetration of renewable energy,” Mr Corona said.
“Transportation infrastructure will continue to benefit from a resilient economic growth environment and favourable demographics in emerging markets. Finally, higher US oil and gas production will support capital investment in the energy infrastructure sector.”
The benefits of infrastructure
Global listed infrastructure assets have several attributes which investors, at the end of the current economic cycle in Australia, may be looking for. Apart from yield, these include:
- Stability - these assets can offer stable and predictable cash flows supported by long term contracts or regulation, with monopolistic characteristics and high barriers to entry.
- Growth - the need for infrastructure investment is a never-ending cycle. Investment in infrastructure helps stimulate sustainable long-term economic growth. That growth then creates a need for further infrastructure.
- Diversification - investors can access a broad set of liquid investment opportunities across geographies and sectors that may not be available through direct investment.
- Liquidity - listed infrastructure companies offer liquid access to illiquid assets.
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) 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.