Infrastructure Investment
No state or nation is able to thrive without infrastructure investments in energy, transportation, communications, & utilities to support growing economies and populations. Airports, railroads, highways, communications, and energy are all needed to move people, products, and information efficiently. Infrastructure is a top global trend for investment consideration. Developed countries have old and neglected infrastructure needs. Emerging markets have unending needs for new infrastructure.
Energy Infrastructure
Energy Infrastructure would include electricity generation and the transmission grid, oil refineries and pipelines, and natural gas pipelines. The United States has an antiquated electrical transmission grid with constraints that limit power flows. Increases in demand for oil and natural gas, and changes in where it needs to go, means a need for more investment in pipelines.
Engineering and construction companies such as Flour (FLR), Shaw Group (SHAW), and Foster Wheeler AG (FWLT) are individual companies which might benefit from future energy infrastructure spending.
Transportation Infrastructure
Over the last several decades America’s infrastructure spending has been less than one-half other developed nations and only a quarter of emerging market countries. Civil engineers give our transport structures low marks. Our roads, railways, ports, and airports are all judged mediocre.
It has become well recognized that we must invest more in upgrading our transportation infrastructure. But because of the years of neglect, substantial increases in operation and maintenance budgets will also be required. The above engineering and construction firms could also benefit from transportation infrastructure spending.
Communications Infrastructure
Communications infrastructure would include items we take for granted everyday, such as the internet, telephone, television (including cable TV), and satellite technology. Individual companies such as Cisco (CSCO) (internet) AT&T (T) and Verizon (VZ) (telephone), Comcast (CMCSA) (television), Boeing (BA) and Loral Space & Communications (LORL) (satellites), all play major roles in developing the communications infrastructure.
Utilities Infrastructure
Delivery of resources such as electricity, natural gas, water and sewer is usually operated by public utilities due to the expensive infrastructure investments required. As a result they are often heavily regulated by government agencies. However, that doesn’t mean there aren’t investment opportunities. Due to the high and growing demand for these services regulators must provide fair rates of return in order to raise capital for these investments. Utilities can provide dividends and capital gains that might have less risk than the average stock.
Summary
ETFs that specialize in infrastructure stocks provide instant diversification. Ishares S&P Global Infrastructure Index (IGF), SPDR FTSE/Macquarie Global Infrastructure 100 (GII), Powershares Emerging Markets Infrastructure (PXR), and IShares S&P Emerging Markets Infrastructure (EMIF) all specialize in infrastructure stocks.
As developed countries’ infrastructures decay, the need to repair and rebuild becomes more important every day. At the same time, developing nations need to meet the growing demands of increased populations and high standards of living. The opportunities in energy, transportation, communications, and utilities infrastructure investing create one of the great global investment trends of our time.
Disclosures: The Arbor Asset Allocation Model Portfolio (AAAMP) has long positions in CSCO, T, and VZ. No positions in FLR, SHAW, FWLT, CMCSA, BA, LORL, IGF, GII, PXR, and EMIF.
| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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