A New Way to Gain Exposure to the Global Infrastructure Market

Infrastructure investments have outperformed the S&P 500 index since the market rout began earlier this year. That’s primarily due to the relative predictability of infrastructure returns driven by regulated and contracted assets. Moreover, many infrastructure assets operate monopolies or duopolies offering substantial yields (e.g., utility companies).

Regulated infrastructure assets also offer protection against rising inflation. For example, many contracts have built-in clauses that increase prices based on the prevailing inflation rate. And, of course, customers don’t typically have an alternative, making it unlikely that raising prices will result in lower revenue or profitability.

And finally, several catalysts could propel growth in specific regions or sub-sectors. For example, the 5G build-out is increasing demand for cellular towers, while the Infrastructure Investment and Jobs Act could provide a secular boost for U.S. infrastructure. Investors can look into these specific areas to find the best opportunities.

BKGI is sub-advised by Newton Investment Management, a BNY Mellon affiliate specializing in theme-based equity and multi-asset investments.

The advisor uses a quantitative and fundamental approach to select infrastructure companies with favorable combinations of cash flow stability, dividend payment potential, and valuation metrics. In addition, the managers consider balance sheet strength, competitive landscapes, valuations, and regulatory concerns when making decisions.

Unlike many other global infrastructure funds, BKGI invests in conventional infrastructure segments, like energy, industrials, and utilities, along with non-traditional segments, like healthcare, real estate, and communication services. The latter opportunities provide exposure to growth areas, like senior housing and 5G telecommunications.

And finally, from a performance standpoint, the fund managers seek an annualized gross forward-looking 12-month yield of 6% or more, making it a solid choice for income investors.

BKGI holds a concentrated portfolio of 27 companies and several currencies. Not surprisingly, many of the most prominent holdings are energy pipeline operators with inflation links. These could help investors mitigate the impact of rising costs on their performance and yield.

The most significant holdings include:
 

• Oneok Inc. (OKE) – 7.59%
• SSE Plc (SSEZY) – 6.98%
• Bouygues SA (BOUYY) – 6.89%
• Enel SPA (ENLAY) – 6.20%
• Medical Properties Trust (MPW) – 6.18%
• Antero Midstream Corp (AM) – 6.04%
• Orange (ORAN) – 5.26%

Despite the energy-focused holdings, the fund managers have extensive positions in Medical Properties Trust — a medical-focused REIT—and Orange — a French telecom business. These holdings help diversify the portfolio and ensure that any downturn in energy price expectations don’t adversely impact the entire portfolio.

Infrastructure investments offer a safe haven for investors concerned about market volatility. In addition, the Infrastructure Investment and Jobs Act could catalyze spending in the space.

Income-focused investors may want to check out the newly-launched BKGI. With a target 6% yield, the fund offers attractive income potential through a concentrated portfolio built with bottom-up fundamental analysis.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.