While recognising that global listed infrastructure is not immune to cyclical fluctuations, a portfolio manager believes that the fundamental needs of society provide a compelling case for the continued relevance of this asset class.
At a Bennelong Funds Management media briefing on Wednesday, Sarah Shaw, chief investment officer at 4D Infrastructure, focused on the implications of “Trump 2.0”, highlighting the Republican campaign’s key policy themes of taxes, tariffs, immigration, and clean energy, and their impact on infrastructure.
“They clearly had big ramifications at a global level, economically, and also from a sectoral level around the world and in the US. If I bring it home to listed infrastructure, what does it mean for us?” she said.
Shaw noted that tariffs could significantly impact rail and port volumes.
“In the short term, it will be very positive as volumes are brought forward to avoid the tariffs. Longer term, you have more of the near-shoring, onshoring dynamic around the world and who can benefit from that.”
She added that shifts in trade routes would create varying impacts across regions and sectors.
On clean energy, Shaw highlighted that Trump’s proposed rollback of parts of the Inflation Reduction Act (IRA) could weigh on the growth outlook for US renewable-focused developers and utilities.
“We have no idea how this is going to play out, but what I can say is, until it is resolved, it is a headwind for the growth pipelines of renewable developers and US utilities ... I don’t think it’s going to be nearly as bad as they expect, but it is a headwind,” she said.
In contrast, a pivot towards traditional fossil fuels could benefit North American pipelines if federal lands are opened for exploration, Shaw explained.
Regarding Trump’s tax agenda, Shaw observed that while tax cuts would be beneficial for sectors like rail and midstream, they could negatively impact US utilities. “It is not positive for the US utility sector, who must pass these on into the consumer base, so they don’t get the benefit of the tax cuts,” she said.
Additionally, Shaw pointed out that inflationary pressures from Trump’s proposed policies, combined with a potential reversal in interest rate trends, could create headwinds for US utilities, despite their strong performance in 2024.
Infrastructure case prevails
But Shaw noted that while uncertainty creates volatility, focusing on infrastructure’s strong fundamentals and market inefficiencies allows investors to benefit from inevitable themes.
“Why I say this ‘must happen’ is because it doesn’t matter who is running the US, it doesn’t matter the direction of interest rates, it doesn’t matter what the market is doing. These investments must happen or the world is going backwards,” she said.
The CIO pointed out five key thematic that 4D Infrastructure believes aren’t going anywhere.
The first is developed market replacement spending, with Shaw noting that, if old and inefficient infrastructure is not replaced, global economies are poised to face a number of consequences.
“Next is population growth,” she added. “We have a global population of 8 billion, expected to peak over 10 billion, so we need to support that absolute population growth.”
“But we also have much of the east getting younger, and much of the west getting older. Both of those dynamics require different forms of infrastructure investment, so we are positioning for both of those,” she said.
Other themes include the emergence of the middle class in developing economies – with infrastructure both a “driver and the first beneficiary” of that evolution– and the energy transition.
Expounding on the latter, Shaw said that despite the lack of clarity on how this transition will fully play out and when, the multi-decade investment opportunity for infrastructure across energy and transport is clear.
“The fifth big thematic is the rise of technology, and all the nuances have come about with it. Now we’ve heard a lot this year about AI and Nvidia and all the exciting growth that is under the way. But I can tell you now what can derail it is the lack of infrastructure,” the CIO said.
“The reality is these thematics that we are prioritising in our portfolio allocation … they are just so important, and they offer such huge growth and value upside.
“With governments unable to wholly fund the infrastructure need, there’s a significant opportunity for private investors to tap into this growth story. We can think of no more compelling or enduring global investment thematic for the coming 50 years,” Shaw said.
