An Australian-based fund manager is expecting global listed infrastructure assets to perform well in 2023 even if inflation continues to rise throughout the year.
Maple-Brown Abbott co-founder and portfolio manager Justin Lannen noted while there are signs inflation has peaked, many infrastructure assets will continue to generate solid returns because their inherent characteristics will allow them to do so.
In particular, Lannen nominated assets such as toll roads and regulated utility networks as examples of this very characteristic. His reasoning behind this call is that the former can pass inflation on via toll rates to motorists, while the latter have their asset base increased by inflation each year, meaning both will be sheltered and even prosper should inflation levels continue to rise.
According to Lannen, stock selection that focuses on some key elements will be critical to successful allocation to this asset class along with other characteristics of the current market.
“We think the best returns on a risk-adjusted basis are generated in the listed infrastructure assets class through stock picking with a focus on valuation, inflation protection, low cash-flow volatility and strong environmental, social and governance credentials,” he noted.
“Overlaying this, there is a shortage of infrastructure globally that is needed to improve living standards and the environment. Large amounts of capital need to be invested over coming decades by both private infrastructure owners and government.”
He identified some significant themes individuals should gravitate towards should they be looking to include listed infrastructure in their investment portfolios.
“We believe the key opportunities are in listed infrastructure companies that play a role in themes such as the energy transition, electrification of society, transport mobility and digitalisation,” he said.
“A very large opportunity exists in the ‘great rewiring’ of the electric grid to support the energy transition to renewables.
“Toll roads and telecommunication tower networks presently offer good valuation opportunities in our view for assets that are necessary for the proper functioning of a modern society and also have resilience in earnings should the world face recessionary conditions in 2023, which is a view held by many market economists.”
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