With much emphasis from politicians in the UK and President Donald Trump in the US on boosting infrastructure spend, it might seem there are plenty of opportunities in developed markets.
But where should investors be heading for their infrastructure exposure? The high-growth emerging markets?
Or perhaps the relatively lower-risk and measurable UK market – ignoring warnings against home bias?
Then again, perhaps people should head to the US, where there have been pledges to boost infrastructure and construction, but where expected projects might not actually come to fruition?
Many UK investors prefer to remain in the home market, where the infrastructure spend of the UK is more measureable and quantifiable.
Mar Beltran, senior director and infrastructure sector lead for Europe, the Middle East and Africa in the infrastructure ratings division of S&P Global Ratings, says this trend is clear.
“Institutional investors in unlisted infrastructure maintain a strong preference for domestic investment opportunities,” she avers.
“This is due to the complexity of the investment: co-ordinating the right network of political and business contacts can take time.”
For William Argent, fund manager for Gravis Capital Management and fund adviser to the VT UK Infrastructure Income fund, the domestic market is a good starting point, but there has been a rush of money into UK infrastructure assets recently.
As a result, he believes the high demand has driven valuations up and pushed implied returns lower.
According to Mr Argent: “This trend has been particularly acute within the UK and some infrastructure companies have responded by increasing their allocations to overseas assets, where better returns may be achieved.
“Investors will benefit from having exposure to a portfolio of infrastructure assets diversified by geographic location.”
However, he adds, investors can achieve this without having to purchase infrastructure companies listed overseas, either by investing in UK companies that derive the bulk of their revenue from overseas operations, or by investing in a UK-listed investment trust that invests in global infrastructure assets, for example.
Ms Beltran agrees: “Managers in listed infrastructure are commonly positioned in global stocks. In essence, it’s all about size: to get capital markets exposure, having global investors is key.”
She also says investors in America are less biased to their home markets than European investors tend to be: “From our perspective, North America-based investors seem more interested in exposure to global infrastructure markets than investors in Europe and Asia.”
Other developed markets
President Trump’s declaration back in January this year of a huge infrastructure spend filled the market with good feelings about what this means for real assets in the US market.
Infrastructure stocks and funds were said at the time to be the main beneficiaries of such promised capital expenditure, with billions of US dollars set aside for key projects.