Playing the Global Infrastructure Boom

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From Standard & Poor's Equity Research

Adding Incentives

And, as Steven Malanga of the Manhattan Institute noted in a City Journal article, "within three months of closing the deal, [Cintra/Macquarie] had installed an electronic toll-collection system to help zoom traffic along and assigned additional collectors during rush hour to help gather cash more quickly. The result: reduced wait times, increased Skyway use, and more money coming in. Chicago didn't bother with any of these reforms when it managed the road, a Macquarie managing director testified before Congress last year. Unlike the city, he said, Macquarie was heavily incentivized to run the road efficiently."

As Visse points out, a singular benefit of PPPs for consumers is the management expertise and operational efficiencies the private sector brings to the table. PPPs currently underway include the Indiana Toll Road, the Pocahontas Parkway in Virginia, and Texas State Highways 130 and 121. Pennsylvania is considering the privatization of the Pennsylvania Turnpike.

For investors, the infrastructure thesis is compelling. According to Visse, infrastructure assets are long-lived, with bond-like characteristics—namely, stable cash flows linked to inflation. Competition is not really an issue; infrastructure assets offer essential, nonsubstitutable services. And perhaps most important—particularly in an investment environment in which the performance of all assets seems to converge—infrastructure has a very low correlation to other asset classes.

Global Plays

How to play infrastructure? Visse, whose Kensington Global Infrastructure Fund is the sole U.S. mutual fund targeting infrastructure, favors transportation, particularly toll roads and airports. Some favorite toll roads include Jiangsu Expressway (JEXYF), Shenzhen Expressway (SZHXF), and Zhejiang Expressway (ZHEXF). Airport stocks include Airports of Thailand and Macquarie Airports, which operates facilities in England, Australia, and Italy.

Australia's Macquarie, which has emerged as a huge player in the global infrastructure space, is available on U.S. exchanges via Macquarie Infrastructure (MIC), which owns, operates, and invests in a diversified group of infrastructure companies in the U.S. and other developed countries, and via the Macquarie Global Infrastructure Total Return Fund (MGU), a closed-end fund that invests in financial assets issued by infrastructure owners, operators, and managers in the U.S. and abroad.

Exchange-traded funds to consider include the SPDR FTSE Macquarie Global Infrastructure 100 (GII) and the PowerShares Global Water Portfolio (PIO).

Holloway is Vice President, S&P Editorial .