Listed Infrastructure Potentially Poised for Attractive Returns as Rates Peak

Interest-rate expectations suggest that monetary policy is likely to ease throughout 2024.¹ Should rates follow this trajectory lower, we believe infrastructure appears well positioned for attractive returns this year.

Sharp real interest rate increases—like those we saw in 2023—can pose challenges for duration-sensitive assets within the listed infrastructure universe. However, we find that infrastructure equities historically have outperformed the broader market following peaks in sovereign yields. The chart below highlights strong returns for infrastructure stocks relative to broader stocks in periods after rates peak.

Recent data suggest that inflation is beginning to moderate, which we believe should translate into interest rates returning to a lower, more normalized long-term range over the course of this year. If history is any guide, infrastructure appears well positioned to generate attractive returns in 2024.

ENDNOTE:

[1] As measured by 30-Day Fed Funds futures pricing data.

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All investing involves risk. The value of an investment will fluctuate over time, and an investor may gain or lose money, or the entire investment. Real assets include real estate securities, infrastructure securities and natural resources securities.

Infrastructure companies may be subject to a variety of factors that may adversely affect their business, including high interest costs, high leverage, regulation costs, economic slowdown, surplus capacity, increased competition, lack of fuel availability and energy conservation policies.

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INDEX DEFINITIONS

The FTSE Global Core Infrastructure 50/50 Index gives participants an industry-defined interpretation of infrastructure and adjusts the exposure to certain infrastructure subsectors. The constituent weights are adjusted as part of the semi-annual review according to three broad industry sectors: 50% utilities; 30% transportation, including capping of 7.5% for railroads/railways; and a 20% mix of other sectors, including pipelines, satellites and telecommunication towers. Company weights within each group are adjusted in proportion to their investable market capitalization.
The MSCI World Index is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets.
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