In order to tackle the economic impact of the Covid-19 pandemic, governments have launched a number of fiscal policies, including those targeting the improvement of infrastructure, considered an effective way to boost economic growth. For example, US President Joe Biden signed a US$1.2 trillion infrastructure bill in November 2021, US$550 billion of which will be used to upgrade, repair or replace ageing infrastructure such as roads, bridges and water supply systems, among other things1.
In addition, in accordance with the European Green Deal that has pledged to move the continent towards a zero-carbon future, the European Commission is expected to invest up to €1 trillion2 in green funds. With such a massive amount of financing being poured into the market, many infrastructure projects are expected to be launched within the next few years, particularly those dealing with renewable energy and grid infrastructure.
Apart from the infrastructure plans set out by the governments, there are two factors that are likely to continue to keep the infrastructure industry buoyant.
Infrastructure-related companies are widely considered to be ‘defensive’. For example, urban water supply and power supply companies have long-term contracts with local governments and hence they are likely to generate income in good and bad times.
There are many infrastructure companies of excellent quality and in good financial shape. With long-term infrastructure contracts in place, these companies are relatively likely to earn a relatively steady cash flow that enables them to pay regular dividends to shareholders at an average of roughly 3% to 6%3, which, in turn, generates potential income for investors.
Many countries’ economies are currently enjoying a strong economic rebound as the global vaccination rate rises, and infrastructure needs in the transportation sector are expected to grow. Apart from short-term boosts during the phase of economic recovery from Covid-19, the world will also need to increase infrastructure spending in the long run. According to research, global investment on infrastructure is expected to reach US$9.4 trillion between 2016 and 2040, with the average annual spending standing at US$3.7 trillion4.
Among all the infrastructure types, those with the greatest long-term investment potential include:
Clean energy: Phasing out the use of fossil fuels but adopting renewable energy sources such as wind and solar to combat the impact of global warming.
Ageing infrastructure: Infrastructure in many mature markets is aging. According to the 2021 report by the American Society of Civil Engineers, much of the local infrastructure in the US has a rating of C to D5, meaning it is in urgent need of being replaced or upgraded in the next few decades.
Water supply and sewage treatment: A clean and reliable supply of drinking water is a basic human need, and sewage treatment is just as important for a healthy and safe living environment.
Network connection: In order to meet the public’s demand for internet and mobile phone services, infrastructure to support cables, data transmission poles and data centres must continually be updated.
BNY Mellon Investment Management has been providing investors with thematic investment solutions since 2011. The company’s unique investment process could help to identify investment opportunities with long-term growth potential at an early stage. The BNY Mellon Global Infrastructure Income Fund aims to provide investors with opportunities to combine income and growth through investment in infrastructure-related companies worldwide.
BNY Mellon’s investment team has years of experience, a deep understanding of the markets and a thorough research process with an emphasis on long-term investment growth value.
They seek out companies in mature markets with strong cash flow and the ability to pay relatively steady dividends over time, as well as explore untapped opportunities in developing markets.
They take a broad investing scope, wherever possible, in order to let investors benefit from a wide range of opportunities. Apart from traditional infrastructure sectors like energy, transportation and utilities, they also consider investment opportunities in non-traditional sectors such as telecommunications, pension housing, hospitals and real estate.
Learn more about the BNY Mellon Global Infrastructure Income Fund today.
1 Source: CNN. Nov 11, 2021
2 Source: WEF. July 13, 2021
3 Source: Newton, Dec 13, 2021
4 Oxford Economics, Global Infrastructure Outlook. Sep 4, 2017
5 American Society of Civil Engineer. Mar 2021
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