Infrastructure investments attractive in rising rate cycle
During a rate rise cycle many sectors, such as consumer discretionary, will be expected to suffer while infrastructure companies are in a unique position to benefit, according to ETF Securities.
Also, in a rate rising cycle investors could become more concerned that the yields would be less appealing compared with risk free cash however it was a second component of infrastructure investing, its capital growth that would make these investments attractive
Many infrastructure companies were expected to grow helped by their pricing power.
What is more, firms that are heavily regulated could expect the benefits of the economic growth that was pushing yields higher to provide a longer-term benefit that outweighed the immediate negative impact of higher rates, ETF Securities said.
Additionally, on the cost side, infrastructure companies would tend to have lower than average debt-to-equity ratios and those firms that raised significant debt financing were likely to have hedged some of their repayment liabilities against rising rates.
Infrastructure spending was set to increase in 2018 driven by Chinese investments and President Trump’s $1.5 trillion package of infrastructure spending.
Exchange rated funds (ETFs) were the easiest and cheapest ways for investors to access this sector and often performed better than the more traditional active managers covering the same theme, according to ETF Securities.
AUTHOR
Oksana Patron
Recommended for you
BlackRock has announced its plan to acquire real estate investment firm ElmTree Funds which will be integrated into its new private financing solutions business.
With share price growth of 45 per cent for FY25, Australian Ethical has shared why it believes the firm has done so well compared to its active peers.
ETF investors would be wise to consider global or European exposure for their equity ETF allocations, according to AXA IM, with US government action expected to hit both its equity and bond performance.
A specialist ETF provider is seeking to become “the new Betashares” with its active ETFs, thanks to its use of algorithms to achieve outperformance.
