Commentary: The case for using real assets to hedge inflation

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Attractive, late-cycle infrastructure stocks, such as access to water and waste services, can be seen as a longer-term defensive game. Due to the nature of infrastructure assets, these projects tend to be very stable and less sensitive to changes in the general economy, and provide protection against rising prices.

Infrastructure investments often operate in pseudo-monopoly environments that are heavily regulated, have high barriers to entry and benefit from inelastic demand. This results in fairly predictable cash flow and maintenance costs, many of which allow for inflation-linked price increases. For example, utilities that face higher prices for the fuels they use to generate electricity are generally allowed to pass these costs on to their customers, making their cash flow more predictable in markets volatile energy.

Beyond price stability, there is also an important income component for investors. Our research shows that over the past 10 years, 45% of total return in global real estate and 52% in global infrastructure has come from dividend income.

However, infrastructure is not without risks, as changes in regulatory environments and governments can lead to a more conducive or restrictive operating environment for unique infrastructure projects. That’s why we advocate a globally diversified approach to infrastructure investing that covers as many different types of infrastructure assets as possible. We believe that by including areas such as communications infrastructure and outsourced government services, such as healthcare facilities and postal systems, greater diversification can be achieved than with a strategy that is too concentrated in public services. energy and pipelines.

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