As global markets display signs of recovery from periods of instability, uncertainty persists for investors navigating the current economic landscape. The lingering effects of geopolitical events, particularly those tied to the Trump administration, have left a trail of volatility, highlighting the need for capital preservation while also seeking potential growth opportunities. Surprisingly, an area garnering attention lies in infrastructure, deemed by many financial experts as a reliable “shock absorber” when broader markets experience turbulence.
Steven Kibbel, a financial planner and chief editorial adviser at Gold IRA Companies, asserts that infrastructure investments benefit from bolstering “strong fundamentals” that seem attractively valued not only historically but also in comparison to global equities. This perception is backed by analysts like Emily Foshag, manager of the Principal Asset Management Global Listed Infrastructure Fund, who notes that the underlying health of these companies supports an attractive investment thesis.
A significant driver of infrastructure demand stems from robust economic growth within emerging markets, which have consistently surpassed developed nations in expansion rates. Varun Jain, chief revenue officer at BITA, an index provider, emphasizes the massive potential of these economies, projecting they will account for over half of global economic growth and ascend to 65% by 2035. S&P Global Market Intelligence forecasts an average annual growth rate of approximately 4% for emerging markets over the next decade, contrasting with a stagnated 1.6% growth for developed nations. Particularly in Asia, Latin America, and Africa, infrastructure investments are estimated to require upwards of $6.5 trillion by 2035 to support urban centers and accommodate growing populations migrating from rural areas.
Thuy Quynh Dang, portfolio manager for the Global Listed Infrastructure Fund at Cohen & Steers, underscores that the rising living standards in these regions will propel demand for essential infrastructure—from reliable water supplies to fast internet connections. Additionally, a burgeoning middle class across emerging markets is increasing demand for international travel, thereby heightening the importance of improving airport infrastructure.
Despite these promising signs, Quynh Dang cautions investors looking to capitalize on emerging-market infrastructure opportunities. Factors such as regulatory restrictions surrounding utility operators and heightened political instability inject an element of risk that must be navigated. The current landscape underscores that only approximately 15% of the listed infrastructure market consists of emerging market utilities, posing a significant hurdle for those favoring direct investments in individual stocks over diversified funds.
Nonetheless, a shift toward attracting foreign private investment is evident, leading to an evolving regulatory framework in many emerging economies that enhances their appeal to international capital. This evolution enables investors to access opportunities ranging from ports in Brazil to airports in Mexico and Thailand, with a growing pipeline of future asset flotations indicating a trend toward an increased market presence of emerging-market infrastructure companies.
In developed economies, a similar resurgence in infrastructure investment is anticipated after years of fiscal restraint that negatively impacted asset maintenance and development. Vincent Gerritsen, head of private markets for Morrison & Co. in the UK and Europe, points out that many Western governments have opted to cut infrastructure spending to reduce deficits, ultimately leading to aging assets that require urgent attention. Observing the state of infrastructure in places like London, where potholes have become a daily nuisance, Gerritsen highlights the tangible effects of budget cuts.
William Rhind, CEO of GraniteShares, notes that recent blackouts in Spain and Portugal are not surprising, given that a considerable portion of Europe’s electricity grids are significantly outdated. The growing consensus is that many developed nations need to re-evaluate their infrastructure investments to sustain economic growth amid shifting demographics and technological advancements.
Encouragingly, an increasing number of governments are recognizing the counterproductive nature of past austerity measures, as they work toward addressing this infrastructure deficit. Public-private partnerships represent one viable avenue for progress. These collaborations allow governments to leverage private sector efficiencies while creating and operating new assets. The £2.2 billion modernization of Gatwick Airport serves as a pertinent example of such a strategy in action.
Additionally, some governments are opting for direct fiscal solutions to fund infrastructure improvements. Germany stands out in this regard, having amended its long-standing debt brake rules to bolster defense spending while simultaneously establishing a €500 billion extra-budgetary fund earmarked for infrastructure investments. Regulatory bodies have received this shift positively, viewing it as an endorsement of Germany’s long-term competitiveness, according to Jon Cunliffe, head of the investment office at JM Finn.
Alongside infrastructure growth, the expansion of the digital economy is poised to contribute notably to infrastructure spending, as highlighted by David Bloom, chairman of data-center company Kao Data. He points out that the increasing demand for robust digital infrastructure—spanning data centers and telecommunication networks—creates a virtuous cycle wherein enhanced digital support fuels economic growth, subsequently amplifying the need for further infrastructure development.
The explosive growth of data centers is significant, particularly as they serve as the backbone of the digital era. Richard Sem from Pantheon’s global infrastructure and real assets investment team emphasizes that beyond the technological demands of AI and cloud computing, these facilities are consuming large amounts of energy, prompting substantial interest from power-generation companies aimed at bridging the growing gap in supply.
Amidst these dynamics, the clean energy transition presents both challenges and opportunities for infrastructure investment, according to Charlie Wright, co-lead investment manager for Foresight Environmental Infrastructure. He acknowledges slower than intended progress due to regulatory pushback, yet maintains that a shift towards a sustainable economy remains inescapable. This transition encapsulates not only the adoption of renewable energy sources but also necessitates a significant overhaul of existing energy infrastructures.
As urgent as addressing fossil fuel reliance is, the task of modernizing electrical grids to accommodate variable energy sources, such as solar and wind, is equally critical. The International Energy Agency has suggested that up to 1,500 gigawatts of renewable projects await grid connectivity, revealing a striking correlation between ambitious climate goals and the electrical infrastructure that underpins them. Indeed, the current annual global investment in power grids must double to $600 billion by 2030 to align with targets aimed at limiting global warming to 1.5 degrees Celsius.
Offshore wind has emerged as a notable area for investment, with countries like Taiwan committing to significant developments in this sector. Colin Ross, chief strategy officer of Ashtead Technology, points out that offshore wind capacity is growing at an annual rate of around 30%, necessitating comprehensive plans for installation, maintenance, and eventual decommissioning.
The extensive implications of transitioning to a greener economy require widespread investment across multiple fronts, from renewable power generation to energy storage solutions and upgraded grid infrastructure. As Nick Langley, a portfolio manager at ClearBridge Investments, highlights, the scale of the required investment may reach as high as $100 trillion over the next 25 years to meet net-zero targets, with some think tanks predicting even higher costs.
Investors in this sector face two primary avenues for participation: firms that manufacture and install infrastructure assets versus those that operate and maintain these assets. Jags Walia, head of global listed infrastructure at Van Lanschot Kempen Investment Management, advocates for ownership-focused investments, particularly with respect to defensive strategies. This approach is informed by the long-term contracts often held by asset operators, which present more predictable cash flows amid the current climate of economic unpredictability.
In contrast, firms that solely provide manufacturing services face heightened uncertainty due to their dependence on fluctuating market dynamics and supply chain challenges. Liability concerns—exacerbated by the ongoing specter of tariffs and trade restrictions—further complicate the investment outlook.
Foshag adds that many infrastructure asset operators typically exist as natural monopolies, possessing significant pricing power that enables them to adjust rates in line with inflation. Regulatory frameworks generally facilitate these adjustments, providing a level of confidence for investors. Foshag indicates that while her preference lies with asset operators over manufacturers, all sectors of the infrastructure space are set to benefit from enduring structural trends driving demand.
To gain exposure to this burgeoning sector, investors may consider various vehicles. The iShares Global Infrastructure UCITS ETF (LSE: INFR), which tracks the FTSE Global Core Infrastructure index, stands out for those seeking straightforward access. Its portfolio comprises approximately half utilities, supplemented by industrial, energy, and real estate investment trusts.
An actively managed alternative is the Kempen (Lux) Global Listed Infrastructure Fund, managed by Jags Walia, targeting firms deriving at least 70% of their revenue from infrastructure assets. This fund focuses on companies with inflation-linked contracts and shorter capital expenditure cycles, optimizing resilience to economic downturns.
The Pantheon Infrastructure (LSE: PINT) investment trust poses another interesting option, with a diverse global portfolio spanning North America, the UK, and Europe. Its holdings encompass an array of high-quality infrastructure assets from data centers to regulated gas transmission systems, providing exposure to a wide-ranging market.
Foresight Environmental Infrastructure (LSE: FGEN) also merits consideration, concentrating on clean energy and decarbonization projects. The fund presently oversees 41 assets, delivering an attractive dividend yield while participating in key sectors such as wind and solar energy, alongside emerging technologies essential for sustainability.
For a more granular, company-specific approach, Sacyr SA (Madrid: SCYR) offers intriguing exposure, given its expansive operations spanning construction, operation, and critical segments like desalination. Predominantly generating revenue from Latin America, particularly Colombia and Chile, Sacyr stands as one of the region’s largest construction firms.
Similarly, Ashtead Technology Holdings (LSE: AT) is well positioned to benefit from growing emphasis on energy security and decarbonization efforts, providing leasing equipment across offshore energy projects. With substantial revenue growth anticipated, the company trades relatively favorably compared to its forecasted earnings.
In light of these developments, the infrastructure sector appears not only resilient but also lucrative for the discerning investor. Amid the larger market’s unpredictability, targeted investments in infrastructure asset operators may present a sound strategy for capitalizing on enduring demand driven by both digitalization and the imperative for sustainable energy solutions. The blend of government commitment, private investment, and evolving regulatory frameworks offer compelling opportunities across multiple investment vehicles, solidifying infrastructure’s place in the modern investment portfolio.