Infrastructure investment has changed vastly in the last few years. Not only is the sector at the epicenter of Biden’s stimulus packages, but “infrastructure” has evolved beyond the traditional view of buildings and transportation. Infrastructure investment now refers not only to road and rail—the literal backbone of 20th century development—but also to emerging global themes like decarbonization, clean water, and digital transformation. Further, infrastructure investment has expanded from municipal bonds to equities and other fixed income solutions. As in the past, there continue to be compelling reasons why an allocation in infrastructure makes sense for today’s portfolios:
• Consistent and stable return profile
• Strong portfolio diversifier.
• Focus on essential assets.
Why Now?
President Biden has put America’s aging infrastructure at the center of his presidency and there is a major infrastructure bill moving through Congress which we believe would provide unprecedented opportunity for investment in the sector.
But what is the best way to invest in infrastructure?
Essentially there are three routes. First, through globally listed infrastructure, which is currently trading very favorably levels*. For example, P/E ratios for infrastructure equity investments are well below those of other comparable investment profiles. Take a look at the MainStay CBRE Global Infrastructure Fund (VCRIX), a Lipper Award winning fund, to learn more.
Second, tax exempt muni bonds can be a strong and traditional option. Three-quarters of all infrastructure funding is provided by muni bonds, and the sector has generally had fewer credit downgrades than the bond market as a whole, largely because of the “essentiality” of the services that municipal issuers provide. For example, the provision of water, power, and education have not been greatly affected by recessions. An option for infrastructure investment via tax exempt muni bonds consider the IQ MacKay Municipal Intermediate ETF (MMIT), a highly rated fund by Morningstar.
Third, taxable muni bonds are an increasingly popular option which fulfil an important role in the ecosystem. Their issuance has surged since their effective inception in 2008 via Build American Bonds after the global financial crisis. They consist of largely the same issuers, but their taxable status means they can be utilized in areas where conventional muni bonds largely have not, such as qualified plans, pensions, endowments, and foundations. Check out the MainStay MacKay U.S. Infrastructure Bond Fund (MGOIX).
*Source: CBRE Clarion as of 3/31/21
All investments are subject to market risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market.
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