Infrastructure is an important asset class for investors who seek diversification and predictable income. But why choose infrastructure as part of your investment portfolio? Read on to learn more about why investing in infrastructure may be right for you.
Reliable Income and Risk-Adjusted Returns
Investing in infrastructure is a good way to diversify your portfolio and enhance risk-adjusted returns. It can help guarantee reliable income in today’s low-interest rate environment. Additionally, infrastructure investing offers better growth potential as well as stable cash flows that can help offset some of the volatility associated with other asset classes.
Infrastructure investments generally fall into two categories: public and private markets (which include real estate). Public market opportunities include bonds issued by government entities such as state or local governments. These bonds tend to have lower yields than those issued by corporations but offer higher credit ratings because they’re backed by sovereign entities. Private market opportunities include real estate investment trusts (REITs), master limited partnerships (MLPs), toll roads, and airports—all of which offer varying degrees of risk/return profiles depending on their structure and geographic location.
Portfolio Diversification
Infrastructure investing is a good way to diversify your portfolio, as it provides exposure to sectors that may not be included in your typical holdings. For example, if you invest in real estate or financial services companies but don’t have any direct investments in utilities or transportation companies (such as airlines), then adding an infrastructure fund will provide additional diversification of industries within your portfolio.
May Offer Better Cash Flow Stability
Infrastructure investments offer stable cash flows with limited correlation to other asset classes. This makes them less volatile than equities and more attractive than traditional fixed income.
Infrastructure is a relatively new asset class. According to PwC’s Global Infrastructure Investor Survey, investment in this space has grown by 35% over the past five years. This growth is expected to continue as investors seek out opportunities that offer attractive returns.
However, it’s vital to note that asset class characteristics may vary based on the types of sponsors, revenue models (e.g., regulated versus nonregulated), and stages in the life cycle of an asset (construction versus operating). Infrastructure projects are typically sponsored by one of three types of entities: public entities, private companies, or financial institutions. The revenue models for these sponsors can vary. With an increasing number of investors seeking out alternative strategies in light of market uncertainty, investments in infrastructure can be a good hedge against inflation.
Global Demand
There are other reasons to invest in infrastructure, including the rising global demand for these investments. Global economic growth is also increasing demand for infrastructure projects around the world as countries compete for Foreign Direct Investment (FDI). Additionally, because these projects often involve multiple countries working together on large-scale endeavors like bridges or power plants, they’re less susceptible to sudden policy changes.
The demand for infrastructure investment is growing globally, and there are many reasons why it makes sense to invest in this asset class. Hampton Wealth Management strives to help individuals and organizations achieve their financial goals. Get in touch with our advisors to learn more about infrastructure investing.