CAPE TOWN – A recent study by PwC estimates that nearly $78 trillion will be spent on infrastructure around the world between 2014 and 2025. By 2025, $9 trillion will be going into infrastructure projects every year.
These are huge numbers, and increasingly it is not only governments that are supplying the funding. The role of the private sector in infrastructure is becoming increasingly critical.
At the same time, infrastructure is growing in importance as an investment theme. Since projects tend to have long life times and steady, above-inflation returns, they represent a defensive option for investors, often with attractive dividend yields.
The fund tracks the S&P Global Infrastructure Index, which holds 75 different shares across 15 countries. It’s primary focus is on the US, with 32.4% of its assets in companies that are listed in New York. The ETF’s next largest country exposures are to Australia and Canada, at 8.7% and 8.2% respectively.
Over the last three years the fund has shown an annualised US dollar total return of 12.4%. It currently offers a dividend yield of 2.9%.
The three largest holdings in the fund are all involved in toll road infrastructure. The biggest is Sydney-listed Transurban Group, which develops and manages toll roads in both Australia and the US. It carries a weighting of 5.5%.
Italian toll road operator Atlantia and the French firm that manages the Channel Tunnel between England and France, Groupe Eurotunnel, are second and third. They carry weightings of 4.7% and 3.4% respectively.
Unsurprisingly, transportation infrastructure is the primary sub-sector in the portfolio, weighted at 42.3%. Utilities carry the second largest exposure at 39.3%. This grouping is primarily involved in electricity, but also includes companies operating in the fields of gas and water.
Although infrastructure can offer a steady return profile, it is not without its risks, which are primarily regulatory and legal. Companies in this space generally operate under government guarantees, and changes in the political situation can potentially put these at risk.
Investors should however feel some comfort from the geographical diversification in the portfolio which lowers this political risk considerably.
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