With markets at all-time highs, and interest rates near all-time lows, many investors are contemplating where to put their money. Investors who are looking for steady income, as well as potential for capital appreciation, may consider infrastructure investments. When it comes to high-yield investments, many of us automatically think of banks, pipelines, and utilities, which are typically considered “safe” or “blue chips.” However, as an alternative, investors can also consider infrastructure assets, which cover a broader category of investments.

The term “infrastructure” refers to long-life, real assets that provide essential services to society.  Economic infrastructure refers to utilities (water utilities and waste treatment), communication (telecom towers, satellites), and transportation (airports, toll roads, parking systems). Social infrastructure includes housing, schools, prisons, and healthcare facilities. Lastly, the term “non-traditional industries” refers to systems such as stock exchanges and payment networks.

Why consider infrastructure investments?

Many of these assets are government-regulated monopolies or oligopolies. Many require an enormous amount of capital to develop and build (e.g. railroads, toll roads, and airports). Therefore, competition remains low, and pricing power remains high. The services provided by such companies are essential components of a functioning society, so demand is inelastic. Many of these companies are able to increase pricing year after year to match the rate of inflation. Therefore, they can provide a steady, long-term stream of income that matches or beats inflation.

Due to the steady and reliable demand for these services, such investments usually have low volatility and low correlations with other asset classes, thus contributing to a portfolio’s diversification. Furthermore, the demand for these services increases as the economy expands and population grows, which makes these assets suitable for investors seeking long-term growth.

How do I invest in infrastructure?

ETFs or mutual funds are a good way to gain exposure to infrastructure assets. For example, iShares Global Infrastructure ETF (in US dollars), tracks the S&P Global Infrastructure Index. CIF, which is in Canadian dollars, tracks the Manulife Asset Management Global Infrastructure Index. Alternatively, you could consider mutual funds that are actively managed, such as Starlight Global Infrastructure Fund, or Signature Global Infrastructure Fund. If you are interested in gaining exposure to infrastructure assets, speak to your advisor about which options are a good fit for your portfolio.