How to invest in infrastructure
THE latest figures from CoreLogic show the residential property market continues to climb, especially in Sydney and Melbourne.
In many areas, infrastructure projects such as new metro lines are giving once "hard to get to” suburbs new appeal, while in other locations, airports or freeways are breathing fresh interest into the area.
It's a good reason for investors to consider the infrastructure sector.
Infrastructure covers things such as rail links, airports, tollways and ports - the building blocks that let modern economies function.
In many state capitals, there is a wealth of infrastructure projects under way. I'm thinking of Sydney's multi-billion dollar WestConnex and NorthConnex projects, Melbourne's new $10 billion Metro Tunnel and the $1.2billion Redcliffe Peninsula Rail Line in Brisbane.
All this government spending on infrastructure benefits the economy, and infrastructure can also be good for investors.
As an asset class, infrastructure may not have the romance of a character- laden rental property, but it can be a sure and steady investment that adds diversity to your portfolio.
A big plus is that returns on infrastructure tend to be stable regardless of economic conditions. After all, we still use tollways and airports even during economic slowdowns.
This is why infrastructure is sometimes referred to as a "defensive” investment.
In addition, infrastructure assets are often the only one of their kind in a particular location and this lack of competition further supports relatively stable returns.
The big question for many investors is how to get a slice of the action.
There are two main ways to invest. One is through directly held shares in infrastructure companies listed on the Australian Securities Exchange. These include companies such as Transurban, which owns toll roads, and Sydney Airport Holdings.
A second approach that offers more diversity, especially if you have limited funds to invest, is a managed infrastructure fund.
Some are listed on the ASX and others are available as unlisted funds.
Either way, the S&P ASX Infrastructure Index shows the sector has enjoyed an annual gain of 15.55% over the past year and average annual gains of 8.01% over the past five years.
Sure, past performance is no guide for the future, but if you want to add stability and diversity to your portfolio, infrastructure could be worth a look.
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.