The inclusion of infrastructure in an investment portfolio can help offset market volatility and provide a greater level of earnings predictability, according to RARE director and senior portfolio manager Richard Elmslie.
“It is pretty hard out there to work out where GDP is going to go, and you’re a brave man if you say with certainty that we are definitely going to be here or gong to be there,” Elmslie said.
“In that kind of environment you really want to be investing in a place you think is relatively safe, and infrastructure is a relatively safe place to go,” he explained.
When looking at infrastructure, RARE favours regulated assets, such as utilities, and user-pays assets, like toll roads.
Elmslie said these types of assets can provide investors with a greater level of comfort.
“Infrastructure does provide pretty good certainty and predictability of future revenue. This goes to earnings, which goes to cashflow, which goes to dividends,” he said.
In regard to defensive characteristics, Elmslie said emerging market investments were potentially more favourable.
“In the developed markets in 2008, people stopped using toll roads. They used other roads or other modes of transport instead. In developing markets, if you drive, you’re wealthy by definition and you don’t care what GDP does,” he said.
“Plus there is no alternative. There is only one road from one destination to another so it actually is quite a defensive asset,” Elmslie explained.
