Global markets are facing challenges, including aggressive interest rate increases, limited equity market breadth, and sticky inflation. However, ClearBridge Investments believes that even in this scenario, opportunities exist in investing in infrastructure, particularly in listed infrastructure. 

“Strong demand for listed infrastructure has been coming from ‘dry powder’ sitting unused in unlisted funds…Decarbonisation, restoring, and 5G evolution trends should support global listed infrastructure assets going forward,” writes Shane Hurst, Portfolio Manager at ClearBridge Investments.  

Subsequently, the asset manager points out that there is a significant valuation gap between listed and unlisted infrastructure assets. Listed infrastructure assets are more liquid and have attracted demand from unlisted investors looking for core infrastructure assets.

Also, Hurst suggests that the move toward net-zero emissions is gaining momentum, with significant investments needed in renewable energy sources like wind and solar. According to him, reshoring, driven by shorter supply chains and local manufacturing incentives, benefits utilities and clean energy infrastructure.

Additionally, ClearBridge informs that the rollout of 5G technology is driving increased capital expenditures on cell phone towers. As data usage continues to grow, communications tower infrastructure presents investment opportunities, adds the asset manager. 

Furthermore, Hurst contends that opportunities to invest in infrastructure can be found in various countries, including the United Kingdom, Japan, Europe, the United States, Brazil, and China, across sectors like water utilities, rail companies, energy, and toll road companies.

On stable dividends and inflation hedge, the asset manager says that most listed infrastructure companies can pass inflation costs to consumers, helping maintain stable dividends. “Companies globally with the best dividend coverage are generally the most solid…Lower inflation will also benefit regulated utilities since they will feel less pressure to increase their prices,” says Hurst.  

“Given the current backdrop, we favour being defensively positioned in utilities with what we consider compelling valuations and that is less sensitive to GDP,” he adds.  

Read the full insight here.