Important note I have read and agree, click to expand


This is a financial promotion for The First State Global Listed Infrastructure Strategy. This information is for professional clients only in the EEA and elsewhere where lawful. Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
  • Currency Risk: Changes in exchange rates will affect the value of assets which are denominated in other currencies.
  • Single Sector Risk: Investing in a single sector may be riskier than investing in a number of different sectors. Investing in a larger number of sectors helps spread risk.
  • Charges to capital risk: The fees and expenses may be charged against the capital property. Deducting expenses from capital reduces the potential for capital growth.
  • Listed infrastructure risk: Investments in infrastructure may be vulnerable to factors that particularly affect the infrastructure sector, for example natural disasters, operational disruption and national and local environmental laws.

For details of the FCA authorised firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information below.

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

Is Infrastructure
an asset class?

Infrastructure isn't just another type of equity. The asset class exhibits unique behavior –with unique potential for portfolio diversification.

Many investors assume that listed infrastructure companies, because they're publicly traded, must behave like any other stock. And it's true that, in the short term, listed infrastructure does tend to correlate more closely to the broader equity market than to direct infrastructure investments.

But don't be fooled. Listed infrastructure is still infrastructure, with its own risk/return profile and structural drivers distinct from those of stocks.

Not just another equity sub-sector

The confusion, I think, arises from a difference in time horizon. Over short time frames – days, months – equities and listed infrastructure tend to move alike. Over longer periods, however, listed infrastructure tends to revert to the patterns typical of its asset class.

Consider the fifteen years ending December 2018. Global listed infrastructure delivered higher returns than global equities as a whole, and even most stock sub-sectors -- and, notably, it did so with lower volatility, demonstrated in the graph when we compare total returns pa vs standard deviation1 pa. 

Global Listed Infrastructure Relative Risk/Return

FTSE Global Core Infrastructure 50/50 Net TR Index GBP from Dec-05, previously Macquarie MSCI World Net TR GBP, as at 31 December 2018
Source: Bloomberg and First State Investments

Infrastructure's unique behavior makes intuitive sense, since these companies provide the essential services that consumers just can't go without, including highways, electric grids, water utilities, even sanitation. Demand for these services tends to be immune to economic cycle, while prices are often heavily regulated or set by contracts to possess a built-in inflation hedge.  Thus, infrastructure as an asset class tends to be less affected by economic growth, or lack thereof.

What's more, infrastructure can also better weather both inflationary and deflationary pressures that would wreak havoc on other markets. Infrastructure companies possess such strong pricing power in their space that they can both raise prices to keep pace with inflation and hold them steady in deflationary markets, either way without sacrificing much in the way of customer demand. Yields in the space have historically ranged between 3% and 4% per annum, with mid-to-high single digit earnings growth – no matter what the stock market is doing.

Unique, big-picture growth drivers

In a macro sense, what drives growth in infrastructure is not the same as what drives growth in equities. Economic trajectory matters far less than structural, societal change. 

Infrastructure is a big-picture asset, driven by big-picture ideas: society's increasing urbanisation, the globalisation of commerce, the fight against climate change – even the digital revolution. These themes are long-lived and persistent. 

Infrastructure's most potent growth driver, however, will likely be a replacement story. From bridges to water systems, much of the world's infrastructure will need to be repaired and restored as it comes to the end of its projected lifetime. At the same time, capacity must be expanded and upgraded to handle the demands of the 21st century. Consider that:

  • More cell towers will be needed to accommodate society's greater reliance on data streaming over smart phones and the "internet of things".
  • To accommodate autonomous vehicles, highways will need better lighting, brighter lane markers, and machine-readable signage. 
  • The switch to clean power will necessitate an upgraded electric grid, with additional peaking plant capacity and extensive build-out of transmission/distribution networks.

Yet for years, infrastructure investment has languished in developed countries, whose governments have struggled to bring in enough revenue to adequately fund projects.

Increasingly, developed nations are turning to private infrastructure companies to fill the gap, in large part through public-private partnerships. Infrastructure providers, of course, stand poised to uniquely benefit from such proposals.

Unique risks

Infrastructure also carries with it a set of risks differentiated from those that drive equity sectors or markets. Three of the biggest risks include: 

  • Regulatory risk: Possibly the most important risk facing infrastructure investments today, regulatory regimes are complex and ever-changing. They differ not just by country, state, and municipality; but also by political administration and specific legislative initiatives.
  • Interest rate risk: Infrastructure projects are enormously expensive and often financed through significant levels of debt. Rising interest rates can put pressure on revenues, making it harder for operators to satisfy their debt obligations long-term. 
  • Event risk: Infrastructure is uniquely exposed to event risk. Dramatic events like terrorist attacks or natural disasters can move stock markets, but terrorists actually attack airports, train stations, and so on; while natural disasters can physically disable roadways and ports. Long after the market corrects, the infrastructure asset impacted by the event can languish. 

Using infrastructure in a portfolio

If infrastructure is its own asset, then it should have its own place in a diversified portfolio. What, then, should it replace?

Our answer: Whatever you need it to. Infrastructure is a versatile asset that can complement many different exposures, including:

  • Bonds: Infrastructure income is often higher than many fixed income investments

  • Equities: Infrastructure provides strong returns with lower volatility than stocks.

  • Commodities: Infrastructure offers a better hedge to inflation than gold or energy

¹ Standard deviation is a statistical measurement in finance that, when applied to the annual rate of return of an investment, sheds light on the historical volatility of that investment. The greater the standard deviation of securities, the greater the variance between each price and the mean, which shows a larger price range. For example, a volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low.