4 Reasons to Invest in Infrastructure
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01 August 2022
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Against a backdrop of heightened volatility in markets this year, infrastructure assets has emerged as a source of stability for investors with its predictable cash flow and strong dividend growth.

Here are 4 reasons why you should invest in infrastructure assets to build resilience in your portfolio.
1. Resilience to Market Volatility

Of the 21 market sell-off episodes identified since 2005, global listed infrastructure stocks outperformed global equities 67% of the time, delivering excess returns of 2.7% on average.

Buttressed by its stable cash flow, strong dividend growth and robust inflation pass-through, infrastructure assets also held up strongly in the 1H’22 despite geopolitical shocks and rising interest rates.

When listed infrastructure outperformed, it did so meaningfully, by 4.5% on average. When it underperformed, it only did so by a paltry 92 basis points. This suggests listed infrastructure can possibly provide some downside protection during periods of heightened market volatility and risk aversion.

2. Income linked to asset bases, not economic cycles

The underlying revenue drivers of infrastructure assets are linked to their asset bases as opposed to economic cycles, making them more resilient in a downturn.

Compare this with traditional dividend-stocks whose income-generation abilities is closely linked to economic activity or the business cycle.

From this perspective, income from listed infrastructure appears more resilient and defensive in nature and somewhat safeguards investors from the vagaries of the economic cycle.
3. A bona fide inflation hedge

With inflation expected to remain higher for longer, listed infrastructure’s bona fides as a genuine inflation hedge looms large. As stated earlier, cash flows and revenues from the use of these assets are typically linked to and protected by regulation, concession agreements and long-dated contracts that may include various forms of price adjustments to help pass through the effects of inflation to end consumers.

Consequently, the returns of user-pay infrastructure companies as well as public utilities are positively correlated with inflation.

Combined with steady demand for these essential services, infrastructure companies are typically able to ensure that nominal earnings keep pace with inflation.

Put simply, we believe demand inelasticity and the ability to pass the effects of inflation to the end customer somewhat insulates user-pay infrastructure companies and utilities – and by extension investors – from the impact of inflation.

4. Underpinned by Secular Trends

Significant decarbonisation efforts in the race to net zero and shifting public spending priorities towards greening infrastructure will boost infrastructure assets.

Continued urbanisation and expansion of the middle-class will also continue to buoy the prospects of listed infrastructure assets in the years ahead, as governments ramp-up spending.

Trillions of investment dollars will likely be directed to this sector in the years ahead as global decarbonisation efforts ramp-up.

These investments will likely expand the asset bases of infrastructure companies within an environment of regulated returns, thereby allowing them to grow dividends over time.

Build Portfolio Resilience
With little overlap against traditional asset classes such as equities and fixed income, infrastructure assets provide an additional source of diversification to investors through a stable income stream owing to the long-term contractual nature of the assets.
 
The Affin Hwang World Series – Global Infrastructure Income Fund provides investors access to global income opportunities through listed infrastructure assets to build resilience in their portfolio.
 
visit www.affinhwangam.com/BUILD to learn more.
Disclaimer
This article has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

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TENG CHEE WAI

Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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