by Florian Hielscher, €uro on Sunday
Against the picturesque backdrop of the Bavarian Elmau Castle, Olaf Scholz recently promoted the investment program decided by the G7 nations. “I am convinced that the G7 can make a stronger, more convincing offer to the global partners. However, we still have a long way to go,” said the Chancellor. The seven industrial nations want to invest 600 billion dollars in the global expansion of infrastructure in developing countries in the coming years. However, the “partnership for global infrastructure and investments” is not so much a G7 initiative, but rather an alternative to the large Chinese project.
With the “New Silk Road” Beijing wants to expand its international influence by establishing and expanding trade and infrastructure projects in developing countries. The Chinese government is also reported to be setting up a state infrastructure investment fund worth nearly $75 billion to boost domestic infrastructure spending and prop up the coronavirus-stricken economy. With their initiative, the G7 countries are emulating the extensive Chinese commitment to infrastructure.
The G7 plan, which Scholz promoted, is not a groundbreaking innovation, but it fuels an existing trend. Johannes Maier, a specialist in global infrastructure stocks at asset manager Bantleon, sees rosy prospects here. “Investment in infrastructure is facing a super cycle,” he says.
Steadfast against turbulence
Securities from this area have already shone with solid performance in the past turbulent stock market months. According to Bloomberg analyst Sonia Baldeira, infrastructure funds have achieved rising comparative returns in recent years and have proven resilient during the pandemic.
Infrastructure stocks have recently impressively demonstrated their stability. In times of increased volatility and economic downturn, water or energy suppliers, for example, are convincing of non-cyclical demand. The globally rising interest rates did not put the stocks under so much pressure either. On the stock markets, those companies that had priced in a high growth potential are particularly suffering. It’s a bit different with infrastructure stocks: “There’s simply less imagination possible because the companies have relatively stable business models and correspondingly predictable cash flows,” says Maier.
Added to this is rising inflation. Due to their relevance for public life and their market position, many companies can pass the increased costs on to customers. Expert Maier illustrated this using the example of the operators of toll roads. These would have to raise fees for using the roads annually by at least the amount of inflation. Companies like France’s Vinci or Australia’s Transurban could adjust their prices accordingly without increasing their costs to the same extent.
The high inflation is therefore less of a burden. However, infrastructure companies cannot completely decouple themselves from economic developments. According to fund manager Maier, investors need to bet on different parts of the sector at different stages of the economic cycle.
“In an economic downturn, it makes more sense to allocate within the infrastructure sector to the most defensive segments, such as water supply, because there is constant demand in every economic phase. In economic upswing phases, we prefer cyclical infrastructure segments such as toll road operators, because these disproportionately Economic growth is a key driver of corporate profits, because then more trucks and cars drive on toll roads,” says the expert.
stability and growth
Investments in funds are a good way to cover the breadth of the field. The thematic diversity is also illustrated by the investment programs of the industrialized nations: the plans of the G7 countries range from the expansion of trade routes with ports or bridges to solar energy projects and the expansion of gas infrastructure.
In addition, funds are much better suited to creating the desired portfolio stability. Although infrastructure stocks often rise less than the broader market during economic booms, they bring stability during downturns. Nevertheless, investors do not have to forego growth opportunities. Future major projects such as the energy transition and the digitalization need new structures.
Fund manager Maier also sees growth potential: “There are companies that have otherwise primarily scored with stability, but now also have an extraordinary growth profile.” From his point of view, areas such as the storage of energy and battery technologies as well as the recycling of metals or digital power solutions offer a lot of potential in the energy transition.
Maier relies on global world market leaders in the expansion of renewable energies such as the European energy groups EDP, Iberdrola and Enel. Recycling specialists such as the Belgian group Umicore or the German Befesa can also be found in his fund. He also sees data center operators as promising and relies on the US company American Tower, among others.
Telecommunications also need expansion: “Especially in Germany, the digital infrastructure in the form of fiber optic networks and radio masts is not sufficient for further increases in data volumes. The demand for existing radio masts and data centers should be secured for decades and should even be able to be expanded further with new systems . Companies from these areas embody the combination of stability and growth.” This makes infrastructure even more attractive as an investment.
INVESTOR INFO
Infrastructure ETF
The fund of the asset manager Blackrock bundles more than 230 companies in its iShares Global Infrastructure ETF. The largest positions are the US energy company Nextera Energy and the railway company Union Pacific. Geographically, the focus is on North America. The USA is heavily overweighted with a share of more than 60 percent, and Canada also accounts for a large part. Over the course of a year, the ETF outperformed the DAX or the S&P 500.
Infrastructure Equity Fund
The Bantleon Select Infrastructure fund managed by Johannes Maier relies on business models with high market entry barriers. Geographically, the US is not that overweight at around 16.5 percent. As a “partner of the energy transition”, the management excludes oil pipelines, among other things. One focus is on Europe. Risk factors such as strong ties to oil prices or foreign currencies are reduced for stability.
Infrastructure Mixed Fund
SPDR Morningstar Multi-Asset Global Infrastructure aims to track the performance of the global infrastructure market. The fund invests roughly equally in equities and fixed-income securities. The largest sectors Utilities and Transport & Logistics together make up more than 80 percent of the composition. The USA accounts for almost half of the country weighting.
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Image sources: Ekkehardt Viefhaus/Hochtief
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