Trends in infrastructure investing
Infrastructure has been an important topic since US President Donald Trump made higher spending in this area an election promise. It’s likely as the US rolls out its infrastructure program, it will turn to capital markets for investment funds.
As a global infrastructure investor, AMP Capital may consider opportunities that are part of this program as it allocates funds from the Global Infrastructure Securities Fund (GLIN).
It’s worth self-managed super fund (SMSF) investors keeping a watching brief on the global infrastructure space. This is because an allocation of funds to infrastructure assets can help diversify portfolios and generate returns.
Some of President Trump’s senior appointments to the new administration indicate a move away from renewable energy sources to policies centred on the reintroduction of fossil fuels.
For instance, new US Secretary of State Rex Tillerson is also an energy executive. Moreover, Secretary of Energy Rick Perry is a former long-term governor of Texas, which has significant oil assets, and former director of Energy Transfer Partners, which invests in oil and natural gas pipelines. The business is building the 1,886 km Dakota Access Pipeline, one of the largest infrastructure projects in the country.
These appointments confirm how central energy is to the new US administration. They may also point to a renewed focus on the infrastructure required to support energy production and distribution.
As yet scant details have been released about the rollout of new energy or infrastructure projects in the US. The complicated regulatory framework is one reason for this.
In the past individual US states have traditionally been responsible for much of the infrastructure investment, rather than the federal governement. Any shift of power to the latter may inject additional complexity into the infrastructure landscape in the US, an element that policymakers must navigate when announcing infrastructure initiatives.
However, it’s worth noting the Obama administration undertook substantial work in this area. So construction of some projects may be ready to start in a relatively short space of time, and both the listed and direct infrastructure markets will likely be part of the solution to meet the investment needs.
In terms of energy infrastructure, the Trump administration has indicated its early support for projects in this area by signing executive orders supporting the Keystone XL and Dakota Access crude oil pipelines. AMP Capital believes there may be good opportunities to invest in energy infrastructure down the track.
Technology and automated vehicles
Alongside the focus on energy infrastructure, AMP Capital believes other trends such as the rapid pace of technological change will drive future investment in infrastructure in the US.
GLIN has already made significant investments in mobile phone towers around the world, as a way to gain exposure to digital disruption. Under this investment thesis, it’s assumed emerging technologies such as autonomous vehicles will drive a greater need for infrastructure to transmit digital data, and a heightened need for phone towers and other telco networks. The average autonomous car is expected to generate 4,000GB of data per day by 2020, compared with the 6-700MB per day for the average human now (source: Intel, Cisco).
Moreover, it’s likely there will be more demands placed on existing infrastructure as technology matures. For instance, the move from 3G to 4G technology has seen a rise in the amount of data that is consumed. This phenomenon will occur again with the switch to 5G, which is already taking place.
Against this backdrop, ownership models for telecommunications towers are changing. In Australia, mobile phone companies have traditionally owned this infrastructure. But there is a shift globally taking place for mobile towers to be sold off and operated by third parties. This allows them to generate economies of scale and operate these assets more efficiently.
The investor’s role
AMP Capital takes a global view of the infrastructure space. We analyse the fundamental attributes of an asset and at the same time consider its ability to generate a return in light of prevailing economic conditions.
We are one of the largest infrastructure investors globally and our approach is to identify and invest in assets we believe are undervalued, to generate returns for our funds.
Recently in Australia, it has become more challenging to find high-quality assets AMP Capital believes are under-priced.
If you know where to look, however, there are still opportunities in overseas markets to identify infrastructure investments that have not been fully appreciated by the market.
SMSF trustees generally invest in infrastructure by buying shares in listed infrastructure vehicles that comprise a variety of assets across different infrastructure sectors and markets. It’s also possible to invest in unlisted managed funds that comprise a basket of different infrastructure investments.
Both listed and unlisted investments have advantages and drawbacks. It’s worth understanding what these are before taking a decision to invest.
Listed infrastructure securities are easy to buy and sell as they are traded on share markets. Investors can access a broad set of liquid investment opportunities across geographies and sectors that may not be available through direct investment. But they also expose investors to equities market volatility.
In contrast, unlisted infrastructure vehicles may take more time to enter and exit. But they don’t expose investors to the ups and downs of share markets.
Both options generally expose SMSF members to a broad basked of different investments, which helps them manage risk.
Considerations for SMSF trustees
Infrastructure may play an important role in SMSF investors’ portfolios. It gives members exposure to emerging global economic trends. At the same time, it offers diversification away from other asset classes.
The stable nature of returns is another characteristic that may make infrastructure an attractive option for SMSFs. Historically, Global Listed Infrastructure has offered an attractive income component as part of the overall total return.
The idea is to look at the potential for assets in this area to generate returns, and at the same time ensure any exposure to infrastructure helps members’ meet their investment goals.
Look for high quality assets managed by experienced owners to ensure infrastructure holdings have the potential improve portfolio returns.
The AMP Capital Global Infrastructure Securities Fund (GLIN)
We believe global listed infrastructure is an important growing asset class that has strongly differentiated characteristics.
Find out more about the benefits of investing in infrastructure, GLIN and all of the other AMP Capital Active ETFs using the link below.
Important note: AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMPCFM) is the responsible entity of the AMP Capital Global Infrastructure Securities Fund (Fund) and the issuer of the units in the Fund. To invest in the Fund, investors will need to obtain the current Product Disclosure Statement (PDS) from AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232 497) (AMP Capital). The PDS contains important information about investing in the Fund and it is important that investors read the PDS before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund. Neither AMP Capital, AMPCFM nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this article. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this article, AMP Capital makes no representation or warranty as to the accuracy or completeness of any statement in it including without limitation, any forecasts. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. Investors should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to their objectives, financial situation and needs.