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Investing in infrastructure stocks can be a lucrative way to tap into sectors like energy and transportation. But because of government intervention, the pace of infrastructure growth can be uncertain.
What are infrastructure stocks?
Infrastructure stocks are tied to companies and organizations responsible for providing essential services to cities and facilitating the transportation of goods and people. Look at it as the underlying grid that keeps an industrial economy running.
With that said, infrastructure stocks provide exposure to a swath of different companies and sectors. Here are some examples of industries and companies involved in infrastructure:
But infrastructure goes even deeper than that. The above industries are what’s known as hard infrastructure. Soft infrastructure, on the other hand, comprises industries that deliver specific services to people in the communities they serve. Here are some examples:
Financial institutions
Education systems
Law enforcement
Governmental bodies
Agriculture
Healthcare systems
You can also find infrastructure stocks in the tech space, specifically within information technology. Companies that make servers and other networking equipment essential for the transfer of data are part of the infrastructure industry. They build equipment that’s essential to how many businesses operate and communicate.
Infrastructure is a vast industry that affects several aspects of our everyday lives. And the players in this industry are equally diverse. They include private companies, government agencies and public/private partnerships.
Many investors turn to infrastructure funds because these investments tend to be less volatile than other types of equities in the long run. Historically, these have generated high yields and have remained less responsive to interest rate fluctuations than other investments.
Moreover, global infrastructure investments have outperformed equities by almost 1% and bonds by nearly 4% since 1976. According to the World Economic Forum, worldwide infrastructure investment is projected to reach $79 trillion by 2040.
In Canada alone, both public and private investment in infrastructure amounted to $85.8 billion in 2018. That same year, the value of Canada’s infrastructure was determined to be $852 billion, or roughly 7.7% of the total national wealth. Highways and road structures typically receive the greater share of infrastructure funding.
Moreover, infrastructure is also essential to any modern, functioning economy. Companies need roads to transport goods and fuel to move goods around. People require electricity, heat, water and waste removal to live comfortable lives.
Infrastructure makes all this possible. And its operations also spur job creation.
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Risks of investing in infrastructure
Because so many infrastructure projects are essential to modern economies, governments tend to take some control. Political disagreement over how to manage certain projects can have a strong impact on infrastructure investments.
For instance, President Donald Trump announced in 2019 his Administration’s plan to invest nearly $1 trillion in infrastructure. But many of these efforts stalled in Congress over political tensions and concerns over the coronavirus.
The latter alone delivered a major blow to the infrastructure sector. Construction and commercial projects slowed or came to a halt as millions of people’s jobs were eliminated.
Infrastructure stocks
There are plenty of roads to infrastructure investing. You can invest in individual stocks, funds or both.
Stocks
Hydro One Limited (TSX: H)
H2O Innovation Inc. (TSXV: HEO)
Aecon Group Inc. (TSX: ARE)
SNC-Lavalin Group Inc. (TSX: SNC)
Imperial Oil Limited (TSX: IMO)
Power Construction Corporation of China, Ltd (SSE: 601669.SS)
Tokyo Electric Power Company Holdings, Incorporated (TKE: 9501)
Aqua America, Inc. (NYSE: WTRU)
AECOM (NYSE: ACM)
Waste Management, Inc. (NYSE: WM)
TechnipFMC plc (NYSE: FTI)
PG&E Corporation (NYSE: PCG)
Marathon Petroleum Corporation (NYSE: MPC)
ETFs
These exchange traded funds (ETFs) track the performance of infrastructure companies as well as other types of businesses. Buying into ETFs lets you gain exposure to a wider portion of the infrastructure sector than if you invested in just a handful of companies.
Global X U.S. Infrastructure Development ETF (BATS: PAVE)
Alerian Energy Infrastructure ETF (NYSEArca: ENFR)
iShares Global Infrastructure ETF (NasdaqGS: IGF)
FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA)
SPDR S&P Global Infrastructure ETF (NYSEArca: GII)
BMO Global Infrastructure Index ETF (TSX: ZGI)
iShares Global Infrastructure Index ETF Common Class (TSX: CIF)
Compare trading platforms
Before you begin trading infrastructure stocks, you’ll need a brokerage account. You have plenty to choose from, so explore your options to find the one that’s right for you.
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Bottom line
Infrastructure investments are typically less volatile than other types of investments. But infrastructure networks can be very complex, so it can be uncertain which companies and industries will thrive. Governments sometimes direct and regulate the sector given its importance to the broader economy, which adds yet another layer of uncertainty.
Yes, there are several mutual funds that invest in stocks of companies involved in the infrastructure sector. These include the the MainStay CBRE Global Infrastructure Fund (Nasdaq: VCRAX), the JHancock Infrastructure Fund (Nasdaq: JEEBX) and the Cohen & Steers Global Infrastructure Fund (Nasdaq: CSUAX).
Infrastructure funds invest in stocks of companies that operate in various industries like oil and gas, construction and railroads.
Yes. The National Strategy for Critical Infrastructure has identified 10 critical infrastructure sectors in Canada including: energy and utilities, finance, food, transportation, government, information and communication technology, health, safety, water and manufacturing.
The National Strategy for Critical infrastructure has highlighted these sectors as part of its mission to set “the direction for enhancing the resilience of Canada’s critical infrastructure against current and emerging hazards.”
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Javier Simon is a freelance finance writer at Finder and a certified educator in personal finance (CEPF).
He’s featured on NerdWallet, Bankrate, Yahoo Finance and Fox Business, where he’s shared his expertise on personal finance topics, such as investing, retirement planning, taxes, budgeting and savings.
He has also covered breaking news, such as student loan forgiveness initiatives, the housing market and inflation’s impact on consumers’ wallets.
His passion is turning complex financial concepts into actionable content that can help people improve their financial lives.
Javier holds a bachelor’s degree in multimedia journalism from SUNY Plattsburgh.
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