The Quiet Achiever: Why Infrastructure Deserves a Place in a Well-Diversified Portfolio…
When most people think about investing, they picture shares, property, or perhaps their KiwiSaver fund. Fewer think about the assets we all rely on every day. Airports, the pipes that deliver our water, the electricity networks that power our homes, and the cellular towers that keep us connected. Yet these assets, known collectively as infrastructure, can play a valuable role in a well-diversified portfolio.
What is infrastructure?
Infrastructure refers to the physical assets that provide essential services to society. It spans a surprisingly diverse range of industries: energy networks and renewable generation, water and wastewater systems, transport assets such as airports, seaports, toll roads and rail, communication assets like cellular towers and data centres, and social infrastructure including hospitals and schools.
Investors can access these assets through listed infrastructure. Shares in companies that own and operate infrastructure, traded on global share markets. This provides everyday investors with exposure to assets that were once the domain of governments and large institutions, with the added benefit of daily liquidity.
Steady demand, resilient cash flows
What makes infrastructure distinctive as an investment is the nature of the services it provides. Demand for electricity, water and transport doesn’t disappear when the economy slows. Many infrastructure businesses operate in regulated industries or hold near-monopoly positions, which supports stable, predictable cash flows and reliable income for investors.
Many infrastructure assets also have revenues linked, directly or indirectly, to inflation. Toll roads, utilities and airports often have pricing arrangements that adjust with the cost of living, which can help protect the real value of an investor’s income over time.
Defensive characteristics when markets wobble
This resilience shows up in the numbers. Since 2001, global listed infrastructure has outperformed the broader share market in more than 70% of the quarters when global equities delivered negative returns, outperforming by around 3% on average during those periods.
No asset class is immune from market downturns, and infrastructure shares will still fall when sentiment sours. But history suggests they tend to fall less, and that pattern of relative defensiveness is precisely what diversification is designed to achieve. A smoother journey leads to a more positive investing experience, and a greater likelihood of investors remaining committed to their investment strategy in all conditions.
Long-term tailwinds
Beyond its defensive qualities, infrastructure sits at the centre of some of the most powerful trends shaping the global economy over the coming decades:
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- The energy transition – The shift toward renewable energy and the electrification of transport and industry will require enormous investment in generation, transmission and distribution networks. Listed utilities are among the largest builders of renewable capacity globally.
- Digitalisation – Data usage continues to grow rapidly, with mobile network traffic increasing at close to 30% per year. Cloud computing and artificial intelligence are driving strong demand for data centres and communication networks.
- Energy security – Geopolitical tensions have highlighted the strategic value of domestic energy supply and export infrastructure, particularly natural gas.
- Transport and logistics – Growing populations and urbanisation support long-term demand for roads, rail, airports, and ports. Many of which enjoy quasi-monopolistic positions.
These are not short-term fads. They are multi-decade themes that require physical assets to be built, maintained and expanded, providing a long runway of growth for the companies that own them.
The AI race is really a power race
One of these themes deserves a closer look. Artificial intelligence is often described as a contest over computer chips, models and software, but it is increasingly a contest over electricity. Training and running AI models requires enormous computing power, which means more data centres, and every new data centre needs a large and reliable supply of power. Electricity infrastructure has quietly become one of the biggest constraints on how fast AI can grow.
This has become a strategic issue between the world’s two largest economies. Infrastructure manager Morrison notes that China is expected to add roughly four times as much power generation capacity as the United States by 2030, helped by a centralised system and a willingness to build ahead of demand. In the US, new projects have often been slowed by fragmented regulation, long connection queues and transmission bottlenecks. Those obstacles are now being actively addressed, because keeping pace in AI depends on it. The practical result is a sustained wave of investment in power stations, transmission lines and grid connections in both countries, likely lasting well into the next decade.
For investors, the appeal is that infrastructure stands to benefit no matter which AI company, model or platform ultimately comes out on top. The technology side of AI may remain volatile, with fortunes shifting quickly between competitors, but every credible outcome still requires more power. The utilities, generators and network owners that supply that power offer a more durable way to participate in the AI story, without having to pick the winner.
Attractive value on offer
Despite these tailwinds, listed infrastructure is currently trading at reasonable valuations relative to both its own history and global equities. Earnings growth across the sector is expected to run above its long-term trend over the next few years, and when combined with dividend yields of around 3–4%, the medium-term outlook is constructive.
There’s another signal worth noting private investors: pension funds, sovereign wealth funds and specialist infrastructure managers have been acquiring listed infrastructure companies at significant premiums to their share market prices, often 20–60% above where the shares were trading. When sophisticated long-term buyers are consistently paying up for these assets, it suggests the listed market may be undervaluing them.
The role in your portfolio
For most investors, infrastructure is not a replacement for shares or bonds but a complement to them. Its blend of defensive characteristics, inflation linkage, income and long-term growth potential means it can improve diversification and help smooth returns across market cycles, particularly valuable in an environment where uncertainty remains elevated.
As with any investment decision, the right allocation depends on your personal circumstances, goals and appetite for risk. If you’d like to discuss whether infrastructure has a place in your portfolio, we’d welcome the conversation.
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This article is intended to provide general information only and does not constitute financial advice under the Financial Markets Conduct Act 2013. It does not take into account your personal objectives, financial situation or needs. Past performance is not a reliable indicator of future performance. Before making any investment decision, we recommend seeking advice from a qualified financial adviser. McBride Wealth (FSP438766) provides independent financial advice to clients across New Zealand.
