Australia’s infrastructure landscape continues to shrink on the ASX, with just eight companies remaining – down from 14 in 2017 and potentially set to fall further if Qube is taken private by Macquarie, as part of a proposed $11.6 billion takeover.
The deal is being reviewed, and if successful, it will result in the delisting of Qube from the stock exchange and its ownership by Macquarie. Betashares says the contraction of listed infrastructure is limiting options for investors who have traditionally turned to the sector for stable cash flows, inflation protection and low-volatility returns.
“Australia’s listed infrastructure universe continues to contract … As this pool has shrunk, investors seeking the defensive, income-oriented characteristics typical of infrastructure have often relied on Australian listed property (A-REITs) as a partial substitute,” investment strategist Tom Wickenden said.
However, Wickenden notes that A-REITs provide an imperfect proxy.
“They remain narrowly concentrated in commercial property, carry higher stock-specific risk, and have historically exhibited higher return volatility than global listed infrastructure,” he said.
Since 2010, global listed infrastructure has delivered stronger returns than both global and Australian property, according to Betashares, while also exhibiting materially lower volatility than global equities, global property and Australian property overall.
“The diversification benefits are also clearer. Since 2006, global listed infrastructure has shown a 0.52 correlation to global equities, modestly below that of Australian equities (0.57) and A-REITs (0.56), improving portfolio resilience.
“Importantly, infrastructure’s unique return drivers, such as predictable cash flows, defensive qualities, inflation protection and generally low correlations, have historically provided Australian investors with a resilient and differentiated source of returns.
“Given domestic infrastructure opportunities dwindling, and A-REITs have proven unable to fully replicate the defensive characteristics of true infrastructure, Australian investors should be looking to global listed infrastructure to offer deeper diversification and more stable, inflation-linked cash-flow exposure.”
However, ETF Shares CIO David Tuckwell argues the shrinking pool of ASX-listed infrastructure companies fits into a broader global trend.
“The decline of publicly listed infrastructure companies on the ASX is part of the broader decline in public markets and rise of privates. I don’t see it as a problem on its own,” he told InvestorDaily.
‘Infrastructure’, Tuckwell says, is not an official sector under any standard industry classification – and is fundamentally different from real estate, healthcare or technology.
“You could make the argument it’s more a term of art used to package assets. Infrastructure companies – such as they are – tend to see the most action in the unlisted space. The Productivity Commission’s famous report on best performing asset classes used by superannuation funds showed that unlisted infrastructure was the best performing over the long term,” he said.
Tuckwell notes that in Australia, unlisted infrastructure is often dominated by industry super funds – meaning members of funds like Hostplus and AustralianSuper already receive significant exposure to “infrastructure”.
“If you’re a giant industry super fund co-owning the Gold Coast airport or whatever via some private market vehicle, it is not clear you or your members have to gain by making the asset exchange traded,” he said.
“Adding to the performance benefits, unlisted infrastructure (airports, sea ports, toll roads, etc.) generate highly reliable cash flows at very low volatility. If you’re trying to manage superannuation liabilities (steady pension payments) then its basically a dream.”
