Forget Real Estate, Try Investing in Infrastructure

Industry Observer with ValuePenguin

What’s the best way to join an economy as it’s booming? For many investors, that answer is simple: real estate. There’s only so much land to go around, after all, and if the economy grows, real estate is bound to increase in value.

But infrastructure might provide an alternative that provides a more direct line on the improving health of an economy. A recent KPMG report said, “Governments are keen to encourage innovation in the infrastructure sector.” That means infrastructure may see expansion across the globe, making it an ideal place to park your investments. Here are some reasons why — and some ways how — you can invest in infrastructure:

Why invest in infrastructure?

There’s no rule that says you can’t invest in both real estate and infrastructure. But you might want to consider expanding into infrastructure given the following:

  • Infrastructure ETFs can give you broad exposure to the market. For most people, investing in real estate usually means purchasing an investment property — or perhaps an REIT (Real Estate Investment Trust). But there are easy ways of investing in infrastructure as well, such as ETFs through iShares or FlexShares. These infrastructure ETFs tend to provide at least a 2% yield, giving you more confidence that you’ll get money back quickly.

  • Infrastructure is changing. The KPMG report quoted above noted that many countries are investing in infrastructure as they look to expand into renewable resources. For example, the nation of Taiwan is looking to get 20% of its energy from renewables by the year 2025. That means investments are coming. The same is true all across the Western world, where an increased emphasis on renewable energy is forcing shifts in infrastructure spending.

  • Infrastructure is always in demand. Because one of the common thoughts in real estate is that land will always be limited, it’s important to remember that there are similar principles at work with infrastructure. As infrastructure always needs to be maintained and built to facilitate growth, it will have stable demand in any country.

  • Infrastructure helps create broader diversification. Adding ETFs to your portfolio is one thing. But infrastructure is another asset class. It’s not another tech company IPO. It’s not another piece of real estate. It’s not gold. It’s something completely different — and will represent a different part of your portfolio. That kind of diversification is what investors should look for if they want a portfolio that can handle a broad range of economic situations.

There’s another aspect to infrastructure that many investors seem to ignore: It’s always intersecting with technology in new ways. Similar to how credit cards and loan providers are beginning to dramatically intersect with technology in the past few years, a similar trend can be found in infrastructure, which you should capitalize on.

At the crossroads of infrastructure and technology

For decades, there was a rule: A limited amount of cab drivers would service the driving needs of an entire city. If you needed a lift, you called a cab.

Yet when Uber and Lyft came along, that changed the way we viewed a pre-existing infrastructure.

In other words, infrastructure may be more closely related to the technology boom than with real estate. Said the KPMG report: “Technologies are being used to digitize the infrastructure experience.” This expansion in capacity is changing the way people interact with infrastructure, giving even pre-existing infrastructure more growth potential.

How to invest in infrastructure

Think of infrastructure as its own asset class. “The $18 trillion U.S. economy relies on a vast network of infrastructure from roads and bridges to freight rail and ports to electrical grids and internet provision,” says the Council on Foreign Relations. Technology and real estate intersect with infrastructure, but it helps to think of infrastructure as its own type of investment.

Airports, for example, support some 1.2 million U.S. jobs. And in the U.S. labor force, some 11% of all workers work in infrastructure-related fields.

But you can’t buy a share of an airport. Nor can you buy a share of an asset class.

Here are some ways you can get around this to make infrastructure a more permanent part of your portfolio:

  • Find the stocks. Infrastructure stocks and infrastructure-related stocks represent a large part of the stock market. You can also find these stocks packed into infrastructure ETFs.

  • Invest in related fields. If you feel infrastructure demand is about to skyrocket, you can also invest in those companies that would benefit from increased infrastructure spending. Resources companies, including steel, tend to do well when there’s good news in the infrastructure world.

You don’t need to cut real estate out of your portfolio. But if you want to invest in a wider range of companies to gain access to a growing boom, infrastructure is an asset class that makes an intriguing option.


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Joe Resendiz

Jr. Research Analyst
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