Andrew Miller column
Jun 6 2007 By Andrew Miller, The Journal
Infrastructure is a hot topic in investment circles. In fact, it is now held to be an asset class in its own right. What is infrastructure? The economist's definition can't really be bettered. Infrastructure is: "the economic arteries and veins roads, ports, railways, airports, power lines, pipes and wires that enable people, goods, commodities, water, energy and information to move about efficiently".
This column touched on infrastructure last week, in the context of climate change. In fact, the future of infrastructure is intimately bound up with the changing face of the world's energy needs. As temperatures rise, new infrastructure will be needed to support water, wind, solar or whatever ends up supplying our needs in the 21st century.
From the UK government's White Paper on Energy published at the end of May, it is clear that infrastructure investment is already high on the agenda in the UK. The White Paper said that `substantial new investment' would be needed in infrastructure - in other words, the sub-stations, power lines, and subterranean cables used to move electricity from a power station on the Scottish coast to your kettle in Newcastle.
Infrastructure stocks are hot right now for two reasons. One is that companies and governments have already started investing in electricity, gas, water and transportation networks.
The second is mergers and acquisitions. Companies are getting bigger to face growing global demand. They are also being snapped up by big investors. Because infrastructure companies tend to have long-lasting, reliable returns, they are very attractive for investors such as pension funds, who need a regular stream of cash.
In the longer term, there are quite a few reasons - besides changing energy needs - why infrastructure makes a tempting investment.
Infrastructure companies rarely have much competition. They are often natural monopolies, because there are high barriers to entry - it would be very difficult for you to set yourself up as a rival to Northumbrian Water, for example.
And finally, infrastructure companies tend to be fairly stable. They are often fairly independent of the rest of the stock market -which makes them a good way to diversify a portfolio.
Infrastructure may not be the most glamorous place to put your money.
But it does make a fairly low-risk investment - and whether governments like it or not, they are all going to have to spend a lot more on infrastructure in the years to come.
Andrew Miller is regional centre head of Gerrard, a part of Barclays Wealth.
