Investing

Economic and Infrastructure Debate Presents Opportunity

Analysts suggest infrastructure investments already have been doing fairly well in recent years despite heightened market volatility. 

By Javier Simon editors@strategic-i.com | March 09, 2017
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To significant applause during his first address to a joint session of Congress, President Donald Trump said: “The time has come for a new program of national rebuilding.” He was referring to a proposed $1 trillion spending plan to revamp America’s infrastructure that would span 10 years.

The measure will be immensely difficult to implement even with Republicans fully controlling Congress, and some reports suggest infrastructure won’t be a priority until at least the end of 2018. But if the president prevails, experts agree his policies could give a lasting boost to infrastructure assets. Many analysts say these investments already have been doing fairly well in recent years despite heightened market volatility. 

In the defined contribution (DC) space, infrastructure typically comes into the picture as part of asset allocation solutions including alternative assets or “real” assets. These include commodities, natural resource equities and listed real estate securities, among others. While these asset types tend to be somewhat illiquid, they can increasingly be accessed in a more liquid way by retirement investors through prepacked diversification solutions.

These assets historically have performed well when stocks and bonds have underperformed, according to a recent report by asset manager Cohen and Steers. This is attractive to investors because of widespread projections of lower returns for stocks and bonds in the coming years.

The same report indicates that between May 1991 and December 2016, a diversified real assets blend portfolio with equally weighted portions dedicated to global real estate, commodities, natural resources and listed infrastructure, would have generated a 6.9% average annualized return. The annualized total return for a typical 60/40 equity/fixed-income portfolio was 6.7%.

The stronger returns may be attributed to a real asset mix’s potential to offset underperforming factors. Despite strong returns for real assets between 1991 and 2016, the firm notes that commodities experienced a bear market from 2008 to early 2016, and that this asset class has historically been sensitive to inflation—something that will likely increase in the event that President Trump succeeds in launching an aggressive infrastructure spending plan and other pro-growth policies.

NEXT: Forming an infrastructure investing plan