Pure-play infrastructure has delivered resilient performance and may offer a compelling investment opportunity during a period of high inflation and potentially slowing economic growth.
Choose wisely: Infrastructure owners and operators typically possess a unique combination of desirable investment characteristics, including historically stable growth and long-term cash flows. These qualities have made them less cyclical and capable of producing attractive levels of yield.
Infrastructure owner/operator American Tower, a company that has grown its revenues, cash flows and dividends at attractive rates, is highlighted in this report.
Infrastructure May Provide a Refuge from Volatility
A potent combination of persistently high inflation, rising interest rates, and a significant and still unresolved international conflict have conspired to drag down performance across most asset classes for the past year. Where can investors look for refuge in today’s volatile markets? One answer may be pure-play infrastructure companies. Owners and operators of essential real assets like pipelines, cell towers and water systems have a unique combination of investment characteristics that has historically made them well suited to withstand uncertain times.
One aspect of the recent bear market for stocks that has been especially painful for investors is that typical portfolio diversifiers—think bonds and real estate—have also suffered losses. There have been very few places to hide. Outside of commodities, one segment of the market that has performed well of late is infrastructure owners and operators. The Dow Jones Brookfield Global Infrastructure Composite Index measures the performance of companies that are owners and operators of pure-play infrastructure assets. Pure play means that a company’s primary business is the ownership and operation of infrastructure assets.
Pure-Play Infrastructure Companies Performed Well Recently
Resilient Performance in Difficult Markets
Desirable Investment Characteristics May Provide Attractive Yield
What has driven infrastructure’s performance in difficult markets? Infrastructure owners and operators possess a unique combination of growth and defensive qualities that have helped them weather the recent downturn well. The need for investment in global infrastructure has been well documented; U.S. infrastructure will get a boost from the recently passed Infrastructure Investment and Jobs Act.
Because infrastructure assets are usually essential and large scale, they often have limited competition and consumer demand for their services is less elastic, making their business models less cyclical in nature. Even if we do enter a recession, people typically will still pay to heat their homes, turn on the lights and use their cell phones. With inflation running hot, owners and operators of infrastructure can often raise revenues in a manner that is consistent with inflation. These qualities have historically enabled infrastructure companies to generate stable cash flows, which has translated to high levels of yield for their shareholders.
Consistently Higher Historical Yields
Quarter-End Yields for Pure-Play Infrastructure Q3 2008-Q2 2022
American Tower: Consistent Growth with Pricing Power
An example of a pure-play infrastructure company with such characteristics is American Tower Corporation (NYSE: AMT). AMT is a global leader in wireless communication that provides the infrastructure needed to enable a connected world. When you see that ubiquitous cell phone tower, there’s a good chance it is owned by AMT, the nation’s largest operator. As the world has become more connected, wireless data usage has exploded. New technologies like 5G and the Internet of Things potentially ensure an attractive runway of growth for years to come. AMT’s business model consists of leases with wireless carriers that are typically non-cancellable, extend for several years, and provide annual lease-price escalators. These attributes have helped AMT deliver double‑digit growth of revenues, cash flows and profits over the previous five- and 10-year periods. Since it started paying a dividend in 2012, AMT has grown its dividend each year at a compound rate of over 21%, what we believe to be an unmistakable sign of quality. Not surprisingly, AMT's stock price has consistently outperformed the S&P 500.
AMT Has a Long-Term, Consistent Growth Profile with Significant Free Cash Flows
Free Cash Flows ($ in Millions)
TOLZ: The Only Pure-Play Infrastructure ETF
ProShares DJ Brookfield Global Infrastructure ETF (TOLZ) is the only ETF to invest exclusively in pure-play infrastructure, giving investors access to the asset class’s stable, attractive cash flows, high yield, and potential to benefit from global growth.
TOLZ follows the Dow Jones Brookfield Global Infrastructure Composite Index. This index consists of developed and emerging markets companies that qualify as “pure-play” infrastructure companies whose primary business is the ownership and operation of infrastructure assets and derive more than 70% of their cash flows from infrastructure lines of business.
As of 6/30/22, TOLZ included a 7.84% allocation to AMT. Holdings are subject to change.
Click here for fund performance. Indexes are unmanaged, and one cannot directly invest in an index. Past performance does not guarantee future results.
DJ Brookfield Global Infrastructure ETF
TOLZ focuses exclusively on pure-play companies—the owners and operators of infrastructure assets such as toll roads, airports and cell towers.