Government support for infrastructure projects across the globe will continue to drive growth in the sector’s asset base while giving more certainty around future earnings growth, a specialist investment manager has predicted.
RARE Infrastructure senior portfolio manager Shane Hurst said global listed infrastructure was less volatile over time compared with equities and continued to offer dependable cash flow and earnings.
“We have run the numbers on equities and property, using the same method on how we model companies by looking at dividend growth, dividends and cash flow, and for global property the expected return is 8 per cent per annum and equities is about 5 per cent per annum,” Hurst said.
He said by comparison RARE was expecting a rate of return above 9 per cent a year for its income and value funds and above 15 per cent for its emerging market fund.
“On a forward-looking basis, it looks compelling to invest in global listed infrastructure because looking at the volatility of global equities from 2007 to the present shows there is more stability in utilities and infrastructure. They are much steadier cash-flow-generating businesses and earnings growth has continued at a stable clip for these businesses,” he said.
He added global infrastructure had a higher dividend yield compared with equities, real estate or government bonds over the past 20 years and the stability and growth of that yield in the future was locked in because around half came from safe dividend-paying companies.
RARE Infrastructure senior portfolio manager Charles Hamieh also pointed to the use of infrastructure investments by some governments to stimulate their economies, which would present further opportunities for investors.
Hamieh said infrastructure projects continued to be approved by regulators, avoiding political uncertainties and nationalistic policies, which was driving record asset base growth and giving certainty to future earnings growth across the sector.
“One of the key drivers for infrastructure is likely to be the increasing focus on ESG (environmental, social and governance) principles and we predict the US election will likely see ‘green’ infrastructure programs gain momentum,” he noted.
“Global initiatives to reduce carbon emissions are resulting in local actions to support the further development of renewable energy and the drive toward greater electrification.
“Governments are setting targets for electricity sourced from renewable energy and Bloomberg New Energy Finance researchers expect 80 per cent of new capacity growth through 2050 will come from renewables.
“Meanwhile, significant capital is being spent to mitigate the effects of climate change and adapt networks and infrastructure to cope with more volatile climatic events, such as ice storms and wildfires.
“There is a movement to increase the efficiency of infrastructure, for example, through the development of electricity storage, and in the reduction of wastage, such as from leaking pipes in water networks.
“All this is driving near-record-rate base growth across the sector, thus presenting and increasing the quantum of investment opportunities.”