Rates, rents, tolls and other pricing schemes are often explicitly linked to inflation through government regulation, concession agreements, or contract terms. Even those assets that aren’t regulated often operate from strong strategic positions, giving them the pricing power to deliver a similar (or better) outcome. As a result, infrastructure operators can usually pass through higher operating costs to their customers. Neither demand nor earnings are meaningfully impacted by the increase, due to the consistent demand for the service being provided.
Over the long-term, earnings stability has enabled listed infrastructure to deliver most of the upside in rising global equity markets, while providing investors with protection from falling ones. For long-term investors, this pattern of performance can accumulate into material outperformance.
The nature of infrastructure assets often makes it hard for other companies to compete with the existing operator. Examples include electricity and gas distribution networks, toll roads with non-compete clauses and city airports with restricted flight paths.
Global Listed Infrastructure Relative Risk/Return
Source: Bloomberg and CFSGAM/FSI. Data as at date to 31 January 2018, USD. Past performance is not indicative of future performance.