Infrastructure is an important piece in the recovery jigsaw


David Jane (pictured), manager of Miton’s Multi Asset funds on the importance of infrastructure investment in helping to boost weak global growth…

Investment in infrastructure has been weak in many economies yet it is an important piece in the recovery jigsaw due to its ability to underpin sustainable economic growth. It tends to do this by improving demand in the short term though job creation and in the long term, improving productivity though better transport, power, water and communication systems.
A number of factors explain why investment has been weak. Undoubtedly, a lack of confidence in the recovery has a role to play, after all, these are generally long term, large, complex projects, which often come with a big slice of political risk. It also reflects a change in the funding environment, specifically for governments (now heavily debt laden) and big banks (generally still repairing their balance sheets) which traditionally have played a key role.
Arguably, infrastructure is an evolving asset class with little correlation to other asset classes and low volatility. It is suited to long term investors like pension funds and sovereign wealth funds and, over time, these investors might take up the slack.
For our part, we do have exposure to increasing infrastructure investment via industrials and resources, as well as some exposure through a selection of businesses involved directly in the infrastructure industry.
For example, we hold ACS (Actividades de Construccion y Servicios), a large Spanish construction business; Atlantia, a large Italian infrastructure business specialising in toll roads and Ferrovial, a large Spanish infrastructure business. All have a decent yield, are attractively valued relative to their sector and should benefit from the narrowing in spreads in the Eurozone, due to their indebted position.