Planes, trains and automobiles worth a look for investors

As an asset class, infrastructure can sometimes be a sure and steady investment that adds diversity to your portfolio.

The latest figures from CoreLogic show the residential property market is continuing to climb especially in Sydney and Melbourne. In many areas, infrastructure projects like new metro lines are giving once ‘hard to get to’ suburbs new appeal, while in other locations, airports or freeways are breathing fresh interest into the area. It’s a good reason for investors to consider the infrastructure sector.

If you’re not familiar with the term, infrastructure covers things like rail links, airports, tollways and ports – the building blocks that let modern economies function.

Across many state capitals, there is a wealth of infrastructure projects underway. I’m thinking of the multi-billion dollar WestConnex and NorthConnex projects in Sydney, the new $10 billion Metro Tunnel in Melbourne, and the $1.2 billion Redcliffe Peninsula Rail Line in Brisbane.

All this government spending on infrastructure benefits the big building and engineering firms as well as building products suppliers. As well as being good for the economy, infrastructure can be good for investors.

As an asset class, infrastructure may not have the romance of a character-laden rental property, but it can be a sure and steady investment that adds diversity to your portfolio.

A big plus is that returns on infrastructure tend to be stable regardless of economic conditions. After all, we still use tollways and airports even during economic slowdowns. This is why infrastructure is sometimes referred to as a ‘defensive’ investment.

In addition, infrastructure assets are often the only one of their kind in a particular location. It’s unlikely for instance, that anyone is going to build a second Sydney Harbour Bridge anytime soon. This lack of competition further underpins relatively stable returns.

The big question for many investors is how to get a slice of the infrastructure action.

There are two main ways to invest in infrastructure. One is through directly held shares in infrastructure companies listed on the Australian Securities Exchange (ASX). These include companies like Transurban, which owns a number of toll roads, and Sydney Airport Holdings.

A second approach, which offers more diversity especially if you have limited funds to invest, is a managed infrastructure fund. Some of these are listed on the ASX, others are available as unlisted funds.

It’s worth noting that some infrastructure investments listed on the ASX involve ‘stapled securities’. These provide exposure to the underlying infrastructure asset as well as the fund management company. They can’t normally be traded separately.

Either way, the S&P ASX Infrastructure Index shows the sector enjoyed annual gains of 15.55% over the last year, and average annual gains of 8.01% over the last five years. Sure, past performance is no guide for the future, but if you want to add stability and diversity to your portfolio, infrastructure could be worth a look.

 

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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