Stable revenues make listed infrastructure attractive in volatile markets

Total returns make listed infrastructure’s defensiveness relative to equities and bonds attractive as listed infrastructure offers the ability to provide long-term capital growth over an economic cycle and differentiation in an environment of macroeconomic uncertainty and higher bond yields, according to ClearBridge.

This asset class expected resilience is underpinned by stability of its earnings and driven by the revenue determination of infrastructure companies and steady demand for regulated and contracted utilities.

“Using the Global Listed Infrastructure Organisation (GLIO) index as a proxy, over the past two decades, there has only been one instance of negative year-over-year EBITDA growth for infrastructure,” Shane Hurst, portfolio manager at ClearBridge, said.

He stressed that due to their regulated nature, utilities results could be generally forecasted with greater certainty relative to general equities.

“Looking at the earnings range (expressed in %) of the most bullish and bearish sell-side broker for companies within each sector, there are less discrepancies among the sell-side brokers for utilities,” Hurst noted.

“Compared to utilities, there is relatively greater uncertainty for user-pays assets’ earnings growth given the less predictable volume component, although user-pays assets have a tighter range of forecast differences than general equities.

“In times of economic stress, then, infrastructure assets in listed markets should provide defensive exposure.”

Hurst also said that while global equities could provide attractive capital returns and real estate investment trusts (REITs) could provide attractive yields, both had revenues and, ultimately, earnings and dividends, that were closely linked to economic activity.

“In a deteriorating economic environment, resilient income, derived from stable earnings frameworks of regulated infrastructure assets, and exposure to economic growth through user-pays assets, can contribute to strong total returns, making listed infrastructure an attractive investment proposition,” Hurst concluded.