This is where the challenges come in as a number of listed infrastructure funds are now offering unattractive yields in comparison to that risk-free rate.
Different strains and opportunities across sectors
Utilities are arguably the most defensive of the infrastructure sub-sectors given the embedded demand for the likes of water, gas, and electricity for people to live their lives.
As Matthew King, lead portfolio manager for global listed securities at Eaton Vance, points out: the sector is also continuing to benefit from the fact we are seeing the proliferation of clean energy investments being accelerated by the Inflation Reduction Act in the US and renewable energy directives in Europe, which are a boost to existing capital programmes.
He says: “The focus on energy transition, energy security and existing asset replacement ensures solid, long-term secular growth for the utility sector.”
While the communications sector suffered in 2022, it is arguably one of the strongest from a long-term perspective, aided by good earnings and cash flow visibility.
Digital technologies are now embedded in our everyday lives. And for me, digital infrastructure covers three specific areas: mobile towers, data centre and fibre optic cables – all of which have major barriers to entry.
The transportation sector is probably the most challenged sector at the moment, with the likes of airports, general traffic, or freight-related movement still below pre-pandemic levels. Although valuations are looking attractive.
Recession-proof and longer-term trends
While the income element is perhaps not as attractive in this environment – a fact that will likely see some 'bond tourists' depart the sector – we do have series of long-term trends that do not impact the growth story.
Not only is government support for global listed infrastructure growing, but private funding is also likely to remain strong. Add in the multi-decade growth story of decarbonisation and the growing need for digital infrastructure and you can see the benefits of investing for the long term.
Income may have stolen the headlines, but it has only been part of the story. I was pleasantly surprised to see that in almost two decades the FTSE Global Core Infrastructure sector has outperformed global equities, returning 373 per cent versus 331 per cent for the MSCI World.
Research from First Sentier also highlights the fact that the sector does possess recessionary traits.
Having undertaken modelling to estimate the potential impact of a recession on different sub-sectors within the asset class, this analysis suggested listed infrastructure may suffer less than half the earnings impact relative to broader markets in this scenario, represented by the S&P 500 index.
