Alongside other routes into infrastructure, such as the more established unlisted infrastructure fund market and the growing interest among larger institutional investors towards direct strategies, institutions looking for stable inflation-linked returns can also consider investing in the stocks of listed companies involved in infrastructure activities.
Out of a universe of more than 160,000 actively trading listed stocks globally, approximately 2,000 of these are classified under ICB and/or GICS classifications as being involved in infrastructure. Despite this however, many of these have only a relatively small proportion of their revenues generated from true core infrastructure activities. This realization led Zurich-based index provider LPX Group to undertake detailed analysis of the revenues of these companies to highlight the approximately 300 listed stocks where the provision of basic infrastructure (infrastructure network facilities) accounts for at least 50% of revenues. Further refining this group of “basic infrastructure” companies according to liquidity criteria has led LPX Group to create the NMX infrastructure index series.
The NMX Infrastructure index series is highly liquid, tracking major stocks with approximately $380bn of market cap that are highly global in nature (45% Americas; 40% Europe; 15% Asia- Pacific). When comparing the NMX30 Infrastructure Global index, which tracks the 30 largest and most liquid basic infrastructure companies, against the MSCI World index from December 1998 to April 2012, the inherently stable and defensive nature of these stocks has performed very favourably for investors. The NMX30 Infrastructure Global shows moderate volatility, with approximately 12.4% from December 1998 to April 2012, and low correlation to other major asset classes. This relative stability bears strong diversification potential, making this form of listed infrastructure equity investment another attractive option for investors to include alongside more traditional exposure in their investment portfolios.
Due to the fact that infrastructure opportunities can be accessed in a variety of ways, it is likely that the majority of investors will continue to utilize various routes to market in future. It is clear that the public sector can no longer cope with the increasing demand for infrastructure development on a global basis, and consequently the private sector will need to shoulder much of the investment responsibility going forward.