Investing in Infrastructure

Infrastructure Investing

The infrastructure sector as a whole has been in the news a lot lately – and not for good reasons. From train derailments to “boil water” advisories, it’s clear that the infrastructure that was designed and built during the 1960s needs an upgrade. All the direct result from infrastructure that is failing and in desperate need of total renovation in some cases.

The US government recognizes that it’s time to act – in 2021 the federal government passed the Infrastructure Investment and Jobs Act (aka – the Bipartisan Infrastructure Deal) to address America’s infrastructure needs. The $550 billion legislation addresses everything from electric vehicle charging station networks to ports to high speed internet.

And the United States is not the only country focused on tackling the issue of addressing the nation's degrading infrastructure. In 2018, the G20 (Group of 20 nations) developed “The G20 Roadmap to Infrastructure as an Asset Class”, endorsed by government and financial officials from around the world.

This "Roadmap" aims to address the issues that are common among infrastructure. Organizations like the OECD (Organization for Economic Co-operation and Development) are key supports of this intercontinental agreement to address the world's infrastructure needs and, as the group hopes, unleash the necessary investment capital needed in order to achieve this goal.

So, who is poised to benefit from investing in infrastructure? First, we should probably go over the basics, like what infrastructure we are talking about.

What is Infrastructure?

Infrastructure is the backbone of our country, as well as modern society as a whole. From the roads that trucks use to carry goods from farms to grocery stores, to the pipes that bring water to your house - infrastructure is all around us. Unfortunately, the American Society of Civil Engineers (ASCE) gives the current state of United States infrastructure a C- (though this is a slight improvement over the 2017 report card grade of D+).

Here are a couple of types of infrastructure to help paint the picture of how expansive this topic is:

Transportation: Planes, trains and automobiles (and boats too!) - everything from high speed rail to the ports of entry where shipping containers are packed, processed and put on trucks and trains constitute the US transportation infrastructure.
Waste: What do you think happens when you flush your toilet? A series of wastewater pipes, sewers, pump stations and treatment plants help purify water so that it can be returned back to the ecosystem.
Energy: US energy infrastructure includes everything from dams generating power through hydroelectricity to the power lines that bring the power to homes, offices, streets and schools - keeping us illuminated and a comfortable temperature inside. Learn more about investing in energy.
Communication: The communications infrastructure includes the 5G wireless network, telephone towers, as well as poles and internet cables.

You don't need to be an expert to invest.

What’s the Current State of U.S. Infrastructure?

The ASCE estimates that the US has an “infrastructure investment gap” of about $2.6 trillion that could eventually cost over $10 trillion in lost GDP by 2039. Even something as simple as sitting in traffic has huge costs over time that impact the economy - things like wasted fuel, lost productivity, and the extra wear on cars from idling.

It’s not just our roads that need work - bridges, tunnels and public transit all need massive investments. In addition to all of this transit infrastructure, modern technology has also become dependent on infrastructure. Everything from internet cables to 5G networks need to be managed and upgraded, especially as we try to expand access to the internet to everyone in the United States.

Why Invest in Infrastructure?

Infrastructure lies at the heart of the world economy. It moves goods from place to place and facilitates communication across the globe. In addition to the physical infrastructure we see and use every day, our technological infrastructure plays a huge role in our everyday life. The transition from 3G to 4G wireless communication helped usher in the era of online banking, Uber, and Snapchat, and the nationwide transition from 4G to 5G could mean big changes and opportunities.

5G offers the most capable wireless infrastructure available that has the potential to be 100 times faster than 4G, with increased connection capacity.

Another exciting infrastructure technology on the horizon is wireless power transfer. Wireless power transfer allows for power to travel over long distances without wires. This new technology could be transformative.

For example, it could provide people in rural areas with reliable access to a sustainable power supply or it could charge electric vehicles without the need to stop at charging stations. All of these new technologies will require changes and updates to our infrastructure - including hardware and software upgrades.

The future of infrastructure is bright, but will require massive investment.

How to Invest in Infrastructure

Given the broad reach of infrastructure and the infrastructure sector as it relates to the market, it can be challenging to narrow down into which investments you want to add to your portfolio.

Infrastructure-focused ETFs, as well as other types of infrastructure funds like mutual funds are an easy way to get broad exposure to the sector without investing directly in individual companies.

Next time you are driving to work, turning the lights on, or just generally living your life, stop and take a second to appreciate all the dollars and hours it took to build the comfortable life we all live. Seeing as how we will always require improved infrastructure and how that improvement will need to be paid for, the world has a constant need to find investors who are willing to put their hard-earned money to work to make this place run and keep the proverbial lights on.

Will you be an investor in the world around you? Try these searches on Magnifi to see the potential infrastructure investments available:

References:

McBride, James and Siripurapu, Anshu, “The State of U.S. Infrastructure,” Council on Foreign Relations, 8 November 2021, https://www.cfr.org/backgrounder/state-us-infrastructure
"Infrastructure Investment," OECD, https://www.oecd.org/g20/topics/infrastructure/
“America's Infrastructure Scores a C-” https://infrastructurereportcard.org/
“How Wastewater Treatment Works…The Basics” The Environmental Protection Agency, https://www3.epa.gov/npdes/pubs/bastre.pdf
McBride, James and Siripurapu, Anshu, “The State of U.S. Infrastructure,” Council on Foreign Relations, 8 November 2021, https://www.cfr.org/backgrounder/state-us-infrastructure

Disclosures:

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