The Lackluster Record for Infrastructure Investments
Calls for fiscal stimulus measures to target infrastructure are growing. But new research shows that infrastructure investments have offered few benefits to investors.
The combination of historically low bond yields and relatively high equity valuations have caused investors to seek nontraditional sources of diversification using alternative investments. In addition, with interest rates at zero and the Federal Reserve using all the tools in its arsenal, it seems likely that fiscal stimulus will have to continue to play an important role in the recovery from the COVID-19 crisis. The combination of these factors has led many to consider infrastructure investments as a source of income, a hedge against inflation, and a diversifier of traditional sources of risk.
Using the FTSE Global Core Infrastructure Index, which includes both developed and emerging markets, the market capitalization of the publicly listed infrastructure equity market has reached about $2 trillion. The definition used to represent listed infrastructure is based on the FTSE Global Developed Core Infrastructure Index. Infrastructure is defined by FTSE Russell as “companies that own, manage or operate structures or networks, which are used for the processing or movement of goods, services, information/data, people, energy and necessities.” Core infrastructure activities can be broken into three major categories:
- Transportation: roads, bridges and tunnels; ports; airports; railways; terminals and depots; and inland waterways.
- Energy: electricity generation, distribution and transmission; water supply projects; and pipelines.
- Telecommunications: fixed line, telephone and data networks; transmission lines or towers; wireless transmission towers; and transmission satellites.