Global infra equities provide long-term outperformance

Infra equities boast better performance than other equities and bonds as well as appealing dividend yields, a paper from Franklin Templeton says.

Global infrastructure equities have provided investors with outperforming long-term returns compared with global equities generally and bonds, according to a paper from Franklin Templeton Investments.

The investment category has shown attractive risk and return characteristics during the past ten years, the paper said.

Average annual performance for global listed infrastructure stood at 11.4 percent over the past ten years, higher than the 5.0 percent rate of return for global bonds and approximately 8.0 percent return for global equities, according to a chart in the paper.

Another factor that helped distinguish global infrastructure equities is their dividend income over the past decade.

“A third of the total return has come from dividends, and dividends have grown by on average over 10 percent per year over that ten-year period (from 2003 to 2014),” said Wilson Magee, director of global real estate and infrastructure securities at Franklin Real Asset Advisors, who authored the paper.

Magee said his firm sees midstream energy as an area that has “tremendous growth opportunities” thanks to the shale gas boom in the US that allows the world’s largest economy to begin exporting a large amount of natural gas to the rest of the world when new liquefied natural gas (LNG) export facilities open.

“Whether it ends up in traditional corporate ownership structures or MLPs (master limited partnerships), we think it’s going to be a very important growth driver in the midstream energy infra area,” Magee said.

In the meantime, the US regulated power utilities sector looks less appealing in terms of growth, according to Magee.

“We see a much lower growth profile than in the midstream sector over the next two to three years” due to slower demand growth. Despite that demand profile, utilities’ earnings have grown a bit faster at about 5 percent per year, he added.

While Franklin Templeton invests around 32 percent of its money in the US and approximately 10 percent in Canada, a big proportion of its investment is in Europe.

Throughout Europe, toll roads, airports and ports have swung to positive growth from negative growth in the past two years, which points to better trends going forward, Magee said.

Infrastructure equities in Asia, such as China and Indonesia, also present attractive opportunities for investors.

Magee said his firm has made investments in water and waste water treatment infrastructure in China.

“Water happens to be relatively small in terms of the amount of capital that is reflected in our strategy, but we definitely believe it is an incredibly important area of infra investment going forward, particularly in developing markets,” he added.