Global infrastructure rides wave of easing policy: ClearBridge

Franklin Templeton subsidiary, ClearBridge Investments, has touted global infrastructure as an investment hotspot for 2025 given its historical strong performance during monetary easing cycles.

The investment manager said a combination of a ‘fiscal impulse’, due to Donald Trump’s US Presidential election win and Republican majority in Congress, and a ‘monetary impulse’, as the US Federal Reserve shifted to a rate-cutting cycle, has seen US equities dominate.

Global infrastructure portfolio managers, Nick Langley, Shane Hurst and Charles Hamieh, said global infrastructure has a long track record of outperforming global equities, especially as monetary policy begins to ease.

“With 2024 returns dominated by the Magnificent Seven, and more recently cyclical stocks surrounding the U.S. presidential election, infrastructure’s differentiated returns offer some diversification away from the risks of concentrated trades. And with Trump’s policies potentially leading to a second round of inflation, infrastructure’s inflation pass-through mechanism will likely be more valuable in 2025,” they said.

“Infrastructure has historically outperformed global equities as rate hikes end. With global central banks easing policy, breadth has  improved with the market beginning to recognise infrastructure’s strong fundamentals and secular themes. These include decarbonisation, growing power demand from artificial intelligence (AI) and data growth, and significant network investments to replace aging assets, improve resiliency and meet the needs of realigning supply chains and onshoring trends.

“We think the earnings stability of utilities will be sought after in a more unpredictable and volatile market going forward. Add structural tailwinds from AI, decarbonisation and network investment, and utility asset bases and earnings are set to grow at some of the fastest levels we have seen in many years. User-pays infrastructure assets are more tied to gross domestic product (GDP) growth, which is projected to rise slightly to 3.2% in 2025, per the International Monetary Fund (IMF). This bodes well for economically sensitive assets such as toll roads, airports and ports.”

ClearBridge’s outlook also reflected trends in US equities experienced by other investment managers particularly in the past month, with the S&P 500 delivering immensly strong results.

“The S&P 500’s advance of 28% year to date (through November) is the second strongest 11-month start to a calendar year since 1997 and one of the best of all time. With a trailing 12-month return of 34% – the 95th percentile of one-year rolling returns since 1989 – it’s hard to describe this run as anything but spectacular,” Chief Investment Officer, Scott Glasser, said.

“With Donald Trump expected to bring a potentially lower tax and lighter regulatory touch to his presidential second term, the market expects a rise in productivity and unleashing of capital investment over the next several years. In our view, the initial impacts of Trump’s victory are likely to be directionally consistent with 2016, favouring value, small capitalisation and cyclical stocks, albeit to a lesser degree given a more mature economic backdrop and current lofty valuations.

“Nonetheless, liquidity – the primary driver of bull and bear markets, in our opinion – continues to be plentiful with credit spreads near all-time lows, capital markets funding wide open (corporate high yield issuance is +44% year to date through October) and the yield curve positively sloped for the first time in two years. Therefore, although near-term ebullient sentiment could create some volatility, the markets’ long-term outlook remains healthy.”