With uncertainty surrounding the Phase One Trade Deal reaching a peak, earnings outlook in decline, and global economies slowing the odds for a market correction grow daily. If you are worried about the market and I think you should be, it may be time for you to add infrastructure to your portfolio.
Infrastructure, the fundamental services, and facilities serving our communities is part of the Real Assets universe. Real Assets include all those things with intrinsic value, things like real estate, natural resources, utilities, and infrastructure. The Real Assets asset class has been growing in popularity over the past few years and the reason is simple; they provide a means for diversification within a portfolio that can boost your returns even in the worst market conditions.
The benefits of Real Assets and Infrastructure include:
- High barriers to entry: Real Asset companies have little to no competition because government regulations make it hard for new businesses to enter the market.
- Stable revenue: Real Asset companies enjoy the most stable revenue streams, revenue streams that are regulated by governments and guaranteed by long-term contracts.
- Long-lived Business - Real assets and in particular Infrastructure projects often take years to complete. Once completed they may be in operation for many decades and require regular maintenance and upkeep.
- Better Inflation-Adjusted Returns: Real asset companies provide better inflation-adjusted returns than mainstream businesses due to the same government contracts that guarantee long-term revenue. This is because their contracts include periodic adjustments for inflation that mean periodic increases in revenue and stable earnings.
- Better Risk-Adjusted Returns: Real assets provide better risk-adjusted returns because investors tend to flock to them in times of market turmoil. This means that your Real Assets investments will outperform in bear markets and may even see capital appreciation.
How To Gain Exposure To Infrastructure
Infrastructure is a very broad category of investments which means there are many ways for investors to gain exposure. Industries include electric power generation, water services, railroads, toll-roads, pipelines, and specialized construction services.
Equities of individual companies like MDU Resources (MDU) are only one method. MDU Resources is a diversified play on infrastructure and pays a healthy dividend. Among MDU Resource’s business segments are construction materials and specialized construction services for the utility industry, electric power generation, and a growing presence in midstream natural gas. MDU is up more than 26% for the year, pays nearly 3.0% at today’s prices, and recently broke out to new highs.
Mid-stream natural gas offers another opportunity for exposure to infrastructure. Demand for natural gas is on the rise and pointing to strong revenue and earnings growth for the sector in 2020. Brookfield’s Public Securities Group sees big promise in the midstream sector. In their latest Real Assets Outlook the number one driver for the sector next year will be a return to growth. Mid-stream operators are expected to produce 5% to 10% revenue growth and that will fuel dividends and dividend growth.
Brookfield is a leader in Real Assets investing. The company has been in business for over a century and specializes in the asset class. The company offers a number of ways for investors including high-yield closed-end funds. The Brookfield Global Listed Infrastructure Income Fund (INF) is a play on global-listed infrastructure, not just mid-stream, but has a focus on the U.S. midstream sector. The fund is up 40% for the year and pays over 7.25% at today’s prices