David Leggette, Lead Product Strategist for CBRE Investment Management joined Keith Black, Managing Director of RIA Channel to discuss infrastructure growth and demand trends.
Investible infrastructure includes assets we use every day like transportation, utilities and digital infrastructure. Traditionally, an allocation to infrastructure has the potential to provide steady cashflow, a hedge against inflation, and a differentiated source of return. Legette also points to growth opportunities in renewable energy and digital infrastructure sectors, citing the clean energy transition and the race to 5G as major tailwinds.
Globally, infrastructure continues to require substantial updates. Experts predict over $100 trillion is needed to build new infrastructure and rebuild existing and aging infrastructure assets over the next several decades. This investment will largely take place in the private sector, but the speed and scale of investments can increase with favorable fiscal policy and governmental investment. For example, the Inflation Reduction Act incentivizes new renewable energy facilities through tax credits.
The Mainstay CBRE Global Listed Infrastructure Fund has about half of its assets dedicated to the theme of energy security and renewable energy, which is a key beneficiary of the Inflation Reduction Act.
Cash flows of infrastructure companies may be driven by sources differentiated from a broad equity index, as infrastructure companies may have contracted cash flows that grow with inflation. Many infrastructure companies are regulated, which allows them to charge prices that allow for a specified return on capital invested. Infrastructure companies may have less exposure to a recessionary environment if the demand for secure energy and digital services continues to grow. Adding investments in infrastructure to a diversified portfolio has historically reduced cyclicality while enhancing portfolio income.
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