Infrastructure - not sexy but stable
THE latest figures from RP Data show the residential property market is cooling slightly. That's hardly a surprise.
No asset market continues to skyrocket indefinitely. But it does give investors reason to pause and consider other opportunities, and if recent government budgets are anything to go by, the infrastructure sector could be worth a look.
Infrastructure refers to the physical framework of modern economies like rail networks, toll ways, ports and bridges. It's hardly a pulse-racing asset class but like the underlying assets it tends to be solid and reliable.
The infrastructure sector was one of the big winners in the recent Federal Budget. Among the key projects to be funded are additional stages of Melbourne's East West Link ($1.5 billion), the Perth Freight Link ($866 million) and Sydney's WestConnex motorway ($1.5 billion).
The Queensland State government budget, delivered just days ago, also made a significant commitment to infrastructure spending in that state.
For investors, all this government support offers opportunities. Think about it, spending on infrastructure will benefit the nation's big building and engineering firms as well as building products suppliers.
Regardless of the promised cash injections, infrastructure offers some general points of appeal to long term investors.
The returns tend to be stable because we still use bridges, roads and railways even during economic slowdowns.
This is why infrastructure is sometimes referred to as a 'defensive' investment.
Many infrastructure assets are the only one of their kind in a particular location - often because of the cost involved. For instance, it's unlikely anyone's going to construct a second harbor bridge any time soon.
This aspect of infrastructure can stabilise the revenue earned for the underlying provider and create more predictable returns for investors.
There are two main ways to invest in infrastructure. One option is through direct share holdings in infrastructure companies listed on the Australian Securities Exchange (ASX).
Or, for a bit of diversity, think about a managed infrastructure fund with access to several underlying assets. These funds usually combine capital growth and dividend income - though in varying proportions depending on the fund.
Growth-focused infrastructure funds may aim to achieve capital gains in the future. Other funds invest in established pieces of infrastructure that can generate a steady flow of income to investors.
It's worth noting that some infrastructure funds listed on the ASX involve 'stapled securities'. This means investors have exposure to the underlying infrastructure asset as well as the fund management company. You can't normally trade either of the securities separately.
Your financial adviser can provide tailored advice on whether infrastructure investments are right for your goals. Or for more information check out the government's MoneySmart website - click on Investing, followed by Complex Investments and follow the links to infrastructure investing.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.