As the global market is approaching the late economic cycle, investors should consider adding listed infrastructure assets into their portfolios, according to RARE Infrastructure’s co-chief executive and co-chief investment officer, Nick Langley.
Listed infrastructure typically was characterised by low volatility and a predictable earnings stream, which made it an asset that would “tick the defensive box”, he said.
“Consensus opinion is that after a 10-year bull run markets are most likely approaching their ‘late economic cycle’ phase,” he said.
“Recent history shows that an interest rate yield curve inversion – where short-term rates are greater than long-term rates – immediately precedes a recession, and it is worth noting that the spread between short and long-term US rates is only 32 basis points (as at 30 June 2018).”
Additionally, the research recently showed that listed infrastructure performed on par with returns from direct ownership of infrastructure assets, making listed infrastructure a simple and convenient way to access the benefits of this asset class.
What is more, global listed infrastructure, compared to ‘only domestic listed’ assets would provide another layer of investor protection.
“For Australian investors, it is worth noting that global listed Infrastructure stocks have low correlation to the AUD, domestic equities and global bonds which makes them an ideal vehicle to provide portfolio diversification,” Langley said.
“Current ideas for RARE’s Value and Income Strategies include increasing the holdings of stocks whose returns are insulated from GDP fluctuations, namely utilities.”
As far as geographies were concerned, RARE said it would focus on US and Canadian utilities due to the forecast strong GDP growth of these economies.
“An example is the recent portfolio addition of Canadian utilities Emera which generates 90 per cent of its earnings from its regulated operations in Florida, New Mexico, Maine and Nova Scotia. We have also increased our conviction in North American pipelines as the valuations have been very attractive.”
