Blogs & Comment

7 reasons to invest in infrastructure

Infrastructure iscountercyclical andriding secular trends in both developing and developed countries.Otherreasons to investalso exist. For more details, read on.
1. During recessions, governments typically raise spending on infrastructure projects to get the economy moving again (e.g. Chinas recent announcement of a stimulus package worth more than half a trillion dollars)
2. Developing countries have significant growth potential and need to build new infrastructure to support that growth over the long run (for example, it is estimated that by the year 2025 in China, 350 million people will move to urban centers this will be like building 20 New York Cities from scratch)
3. Developed countries have aging infrastructure in need of repair and upgrading
4. Pension and other institutional investors are increasingly investing in infrastructure assets
5. Infrastructure is seen as a hedge against inflation because a good part of revenues come from tolls and regulated prices (which are set according to cost-plus formulas)
6. Declining commodity prices render infrastructural projects more profitable and make it feasible for suppliers to take them off the shelf
7. Infrastructure stocks have been dragged down by the financial crisis and are now better values.
Several infrastructure exchange traded funds (ETFs) make it easy to gain exposure. But check whats under the hood before investing. There are significant differences. For example GII is nearly 90% utilities while IGF is 40% and FLM is 0%. They are all global ETFs and so may be affected by currency fluctuations. CIF trades on a Canadian exchange; the rest on U.S. exchanges.
iShares S&P Global Infrastructure ETF(IGF) SPDR/FTSE Macquarie Global Infrastructure 100 Fund(GII) ISE Global Engineering and Construction Index Fund(FLM) Claymore Global Infrastructure ETF(CIF) PowerShares Emerging Markets Infrastructure Portfolio ETF(PXR).