Investing in essential services
Investing in essential services
Michael Collins
Investment Specialist, Magellan Asset Management Limited
Does your portfolio include listed infrastructure – some of the most basic and essential assets like water, gas and rail transportation?
Leveraged offers gearing into many domestic and international segments and markets, including essential services.
Infrastructure and utility stocks have been around a long time – the oldest listed utility, Consolidated Edison of the US, traces its listing to 1824. Yet it wasn’t until the 90’s that the asset class became a viable option for everyday investors.
More than 350 infrastructure and utility companies are listed on global stock markets, representing a market cap in excess of US$4 trillion - about three times the market value of the Australian stock market.[1]
What are some of the assets included in listed infrastructure?
Airports
In 2017, planes carried 4.1 billion passengers worldwide through the world’s airports[2] - of which there are roughly 42,000.[3]
Communication towers
The phenomenal growth of the internet and mobile devices makes communication towers even more of an essential service. Worldwide there are an estimated 3.4 million towers.[4] The biggest tower operators have a large reach – American Tower, for example, has about 170,000 towers across 16 countries in five continents.[5]
Water
Perhaps the most essential of all services provided, Australian households, businesses and other bodies spend about $8 billion[6] on the 38 Sydney Harbour equivalents of water they use each year.[7]
Natural gas
Natural gas is nearly as interwoven into our daily lives as electricity. In Australia, more than 37,000 kilometres of natural gas transmission pipelines shift gas from where it is produced to the outskirts of cities and towns – supplying about 20% of energy needs.[8]
Rail
From agriculture to automotive parts to chemicals and coal, railroads serve practically every industry and form an essential mode of transport for communities. About 40% of freight that moves between US cities is moved by rail.[9]
Electricity
Modern life wouldn’t be very modern without the electricity that arrives via the grid. In the US, the grid transmits electric power from generation plants through 262,000 kilometres of high-voltage electrical conductors and more than 15,000 transmission substations.[10]
Toll roads
Toll roads have been around for thousands of years. Today the US has about 9,000 kilometres of toll roads, and host more than five billion trips a year[11].
Why invest in listed infrastructure?
Infrastructure is a distinctive asset class in three ways:
- It can deliver solid and stable earnings
The vast majority of infrastructure assets typically face constant demand, limited competition and a stable regulatory environment. Infrastructure is thus well positioned to generate reliable cash flows and solid and stable earnings growth, no matter what economic conditions prevail. - It offers inflation protection
Infrastructure comes with natural or built-in protection against inflation because regulators allow these companies to raise their prices to protect their earnings when their costs rise. - It has lower risk of capital loss
Assets that have reliable earnings growth and stable income streams are typically havens – sources of stability – in times of market declines.
Including infrastructure as part of a diversified portfolio can reduce portfolio risk. Like all investments, borrowing to buy financial products carries risk – gearing can magnify your gains, as well as your losses.
You can visit our website for the complete list of domestic and international shares available under the Leveraged Margin Loan.
If you have any questions, or would like to discuss your loan account, please contact your Relationship Manager
or call Leveraged on 1300 307 807.
[2] ATA Annual Review 2018
[3] Central Intelligence Agency. The World Factbook. ‘Field listing: Airports’. Numbers are for 2013. cia.gov/library/publications/the-world-factbook/fields/2053.html
[4] Morgan Stanley Research. ‘Global telecommunications. Hidden value in tower portfolios.’ 19 July 2016. Page 9
[5] American Tower Corporation: An Overview Second Quarter 2018
[6] The Australian Water Industry. ‘Water industry fact sheet’. h2oz.org.au/Beneath-the-Surface/The-H2Oz-Industry/Water-Industry-Fact-Sheet.aspx
[7] Australian Bureau of Statistics. ‘Australians paying more for less water.’ Media release. 29 November 2015. abs.gov.au/ausstats/abs@.nsf/39433889d406eeb9ca2570610019e9a5/ cf764a3639384fdcca257233007975b7!OpenDocument
[8] Australian Pipelines & Gas Association. ‘Facts and figures.’ apga.org.au/industry/facts-and-figures-about-pipelines-and-gas/
[9] US Department of Transportation. ‘Freight rail overview.’ fra.dot.gov/Page/P0362
[10] The National Academies Press. ‘Electricity transmission and distribution.’ nap.edu/read/12091/chapter/13
[11] IBTTA. ‘Debunking the myths of highway tolling.’ Figures are for 2011. ibtta.org/sites/default/files/documents/MAF/5%20Myths.pdf
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Things you should know
Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.
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