In the two decades that it has been recognised as an asset class, the global listed infrastructure universe has grown to some $3.5 trillion in size.
While the asset class underperformed both global equities (24 per cent) and global bonds (6 per cent) in 2023, delivering a modest 2 per cent, market experts have suggested that global listed infrastructure could act as a defensive diversification tool in an environment marred by operating expenditure inflation and slower economic growth in 2024.
Speaking on a recent episode of Relative Return, Sarah Shaw, global portfolio manager and chief investment officer of 4D Infrastructure, outlined the “unique opportunity” listed infrastructure has to offer investors looking to create some additional defence in their portfolio.
“It gives you access to what are very defensive investment characteristics, which ultimately come together to give you long-term visible and resilient earnings streams. Now that’s quite attractive. As an investor, you like to be able to have that visibility,” Shaw told InvestorDaily.
“Now that’s largely because they’re either contracted or regulated earnings streams, as well as the fact that they have characteristics, including inflation hedges, which has clearly been phenomenal over the last couple of years where inflation has spiked.”
But what makes infrastructure so unique, Shaw explained, is the economically diverse sub-sectors that make the asset class an attractive prospect for investors regardless of the short-term outlook.
On the one hand, “user-pay assets”, which includes the likes of toll roads, airports and railways, are correlated to economic activity, but the environment they operate in provides returns regardless of volume.
“They capture GDP via volumes and they’re explicitly inflation hedged. They’ve been a fantastic overweight over the last 12 to 18 months in this inflationary demand-driven environment,” Shaw explained.
On the other hand, essential services are immune to economic shifts as a function of them being a basic need.
“They will give you downside protection in a recession and benefit from interest rates falling. These are the assets that could look good throughout this year,” she said.
“So for us, the ability to actively manage or actively position between these economically sensitive and these ones that actually support the downside is a really attractive characteristic of the asset class, which means that we can weather whatever 2024 throws at us.
“We have this beautiful universe of stocks that allows us to position accordingly.”
Creating ‘diversity in thought’ in infrastructure
In light of International Women’s Day, Shaw also underscored the necessity for additional support for women entering the finance sector, particularly in male-dominated fields such as infrastructure.
“There’s very few [women] in finance and there’s even fewer in the infrastructure world. So I’d love to do everything I can to promote increased female participation in this industry,” she said.
“We have a different mindset to men and that actually provides diversity in thought and a greater skill set in coming to decisions around investments and portfolios.”
Ultimately, Shaw believed that the first step would be additional education at the grassroots level, recounting that she was unaware that a position akin to her current one existed while at school and university.
“I do think there needs to be a greater education around the potential of roles or the potential of what you can do with a brain that likes numbers effectively.
“If this is an area of interest, if [women] like the idea of equity markets, if they like the idea of investigating or analysing companies, these are roles that are available to them today, definitely,” she concluded.
