Infrastructure: The income opportunity

Written by: Global Thought Leadership | March 17, 2017
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Source: Bloomberg, as of 2/28/17. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


The Bottom Line

  • Income remains harder to get than most investors would like—and not surprisingly, interest in non-traditional income investments continues to be strong.
  • That includes listed infrastructure stocks—which on a global basis continue to hold a significant yield advantage over stocks and investment-grade bonds in general.1
  • Why do infrastructure stocks pay more? In large part, because infrastructure firms are often regulated in ways that tie revenues to inflation, which promotes stable cash flow growth as well as sustainable payouts over time.
  • In addition, the sector is marked by lower correlations and reduced volatility relative to other major global asset classes—qualities that help enhance portfolio diversification.   
  • Yet identifying attractive companies in the sector can be quite complex. Risks, returns and economic sensitivities are different for each sub-sector, as are the laws and regulations governing these companies in different countries.
  • In order to realize its many potential benefits and also enjoy a level of liquidity attainable in other asset classes, investors may choose to consider active solutions that take a selective approach to listed infrastructure investing—one with the flexibility to take advantage of opportunities when markets misprice infrastructure assets in the short term.


1 Source: Bloomberg. As of 2/28/17, the trailing 12-month dividend yield of the S&P Global Infrastructure Index (3.77%), a key benchmark for the infrastructure sector, was notably above—and has been for some time—that of the MSCI World equity index (2.41%) and it also well above the yield to worst of the Bloomberg Barclays Global Aggregate Bond Index (1.58%).



IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

Diversification does not guarantee a profit or protect against loss.

Yields and dividends represent past performance and there is no guarantee they will continue to be paid.

Active management does not ensure gains or protect against market declines.