Is it time to consider investing in infrastructure?
While commodity stocks have been grabbing the headlines recently, there are potential investment opportunities in another sector with great global potential: infrastructure.
In North America and around the world, massive investment will be needed to build and replace roads, public buildings, water and electrical systems, airports, and other structures that modern economies depend on.
Growth and stability
Pension plans have long been advocates of infrastructure investing, favouring assets such as toll roads and utilities whose operations produce a long-term income stream.
Today, there are many opportunities for individual investors to participate in infrastructure as well. Because the ownership and management of these projects can run for decades, these investments have less correlation with stock and bond markets — making them a compelling diversification tool.
Why now?
Infrastructure in many developed countries is in need of dramatic overhaul. In 2005, Canada’s provinces and territories identified $97 billion in required spending on transportation facilities alone.
The American Society of Civil Engineers, meanwhile, estimates that after years of underinvestment, renewing the United States’ aging infrastructure will take an expenditure of about $1.6 trillion over five years. To cite one example, 3,500 of the nation’s dams are considered to be unsafe.
In China, India, and other developing countries, infrastructure need is being driven by urbanization. Populations are growing and people are moving to the cities, creating a demand for construction services and materials to build the schools, public transportation systems, and other facilities they will need.
How to invest
Perhaps the simplest way to benefit is to invest in the companies that will build and operate the new wave of projects. This includes the civil construction and engineering companies that plan and build large-scale projects. In some cases, engineering companies are choosing to manage the projects they build, adding a long-term income stream that can help stabilize returns on investment.
Canada has a handful of companies with domestic and international experience. But there are also opportunities in the United States, and in foreign markets such as India and Hong Kong, which can provide access to the burgeoning activity in Asia.
A wide variety of other companies will also benefit from the expected infrastructure boom. These include specialized service providers such as electrical contractors and environmental companies, and suppliers of heavy machinery, power generation equipment, pipelines, and electrical components. The list includes companies that supply basic materials used in construction projects.
There are many ways to take part in infrastructure. You can invest in individual stocks directly or gain diversification through mutual funds. Canada has a small, but growing number of funds that specialize in domestic and global infrastructure investments.
We can work with you to identify investment opportunities in the infrastructure sector that fit with your portfolio and investment goals.