INFRASTRUCTURE INCOME – winning for LIFE

You get paid by the letter with a word like i-n-f-r-a-s-t-r-u-c-t-u-r-e.   Picture the long lucrative history of this word!  Rome built an economic miracle on roads and aquaducts.  Canada stretched east to west by railroad, and expanded urban centres with electrical and gas utilities.  Infrastructure is the base of every healthy, growing economy, and it pays expanding income to those who own it.  Join me here as I share about this special class of assets and how they fit among five dynamic engines of Life Income.  (See Life income mandates.)

IN EVERYDAY LIFE.

Infrastructure is literally expanding into every area of modern life.  Where we'll focus now is to own a slice of this revenue-generating activity and get paid for it.

CONSIDER TOLL HIGHWAYS where we choose to pay because we can drive more easily and get places faster.  These highways are never free and the cost goes up at least every year.  If you own a piece of this, you're reaping the benefits of a time-starved driven world that wants to get out and get back safely.

CELL AND INTERNET SERVICES, today's telecommunications, are a great advance on postage and pay phones.  What a terrific upgrade today.  We're all eager for the next stage, and in some countries mobile is even the backbone of banking.  Naturally, whoever is involved in building, managing, or owning this infrastructure will get paid the rewards.

HOSPITALS and even PRISONS in some countries are privately managed as profitable enterprises.  It's no stretch to realize if you're parking at a hospital for $20 to $50 per day that drain on the wallet is heading into someone's pocket!  Let's put you on the receiving end of that flow.

PIPELINES, ELECTRICAL GRIDS, RENEWABLE WIND AND SOLAR energy generation illustrate other vital forms of infrastructure …as governments and private enterprise negotiate their respective share of the income.

RAILWAYS, HIGHWAYS, SHIPPING TERMINALS, LOGISTICS MANAGEMENT, PORT SYSTEMS AND AIRPORTS also fit into infrastructure.  None of this is free;  all of it creates cash flow to those who own it.

WATER SYSTEMS AND WASTE TREATMENT are of unparalleled importance as we're seeing along the west coasts of South and North America, Australia, S.Africa, and many other drought zones.  In many regions on every continent humanity's greatest priority is refurbishing and expanding water access and waste treatment.  Sometimes included in municipal services, much of the world relies on private industry to keep this moving and functioning effectively.

In all such infrastructure money changes hands and owners reap the financial rewards.   No doubt, you and I want to be among the owners of such infrastructure investments!

PREDICTABLE AND GROWING CASH FLOWS.

As you consider assets like those described above, would you say these are short- or long-term assets?   Are they built to disappear quickly or will they last for decades?  Such questions are rhetorical:  indeed these assets are long-lasting assets.

These also may offer a monopoly or a cost that would prevent others from competing.  A gas pipeline or toll bridge might be twinned but these things require a lot of time and money.  Airport authorities for Paris, Zurich, and Sydney Australia are currently in our funds and it's highly unlikely someone will set up competing services there.

What's not to like?  Resilient and predictable cash flows, attractive yields, inflation protection, and low-volatility earnings.  In any investment portfolio these characteristics prove valuable to sustain income and reduce investment risk.

REGULATED vs. USER-PAY.

We distinguish between user-pay and regulated assets.  During recessions, government-regulated infrastructure seems rock solid.  Where we live, regulated utilities such as electricity and natural gas pay reliable income through rosy periods as well as in recessions.

"User pay" assets include toll roads, airports, railways, shipping terminals, where income accelerates when the economy is blossoming.  A portfolio team monitors the business cycle and how to balance between regulated or user-pay assets.

REDUCING INVESTMENT RISK.  

We want to sustain income while reducing risk.   It has been clearly shown that when stock markets fall their worst, infrastructure retains value and recovers faster.

2008 / 2009 was a litmus test.  Global dividend equities dropped over 30%.  Many stock indices dropped over 65%.  Infrastructure assets slumped 15% but the income they were paying continued to increase ...and this drove an energetic recovery.  

Lacking infrastructure increases risk.  Over time, infrastructure reduces risk of bonds paying too little, and mainstream equities dropping too often and too far.  In short, infrastructure assets help perpetuate Income for Life.

DO YOU OWN IT NOW?

Let's say you want a "second opinion" on your investment accounts.  Let's get a look and see where we can find infrastructure and the other income mandates.  If you have it, should you have more?  Many leading pension plans have 15% or more of their assets in infrastructure because this helps provide the money they'll be paying for decades to come.  How is your plan doing today?

INCOME FOR LIFE.

I've found that infrastructure income is one of five life income mandates that can reduce risk and increase your life income.  Retirement is safer with investments that pay stable and rising income.  Our future horizons will be more resourceful and abundant for travel and leisure, for family and fun, for future comfort and ongoing enjoyment.  And more ...there's a family inheritance to consider.  Reach me; let's speak on this together.

Brian Weatherdon, MA. CFP. CLU. CPCA.  
627 Guelph Line, Burlington, Ontario. L7R 3M7.   
Ret.Coach SEALCertified Financial Planner.  Certified Retirement Coach.
brian@SovereignWealth.ca 
905-637-3500
 

4 comments

  1. Excerpt from Mark Mobius, Franklin Templeton, June 2015:

    “Emerging economies in general have experienced stronger economic growth trends than developed markets over the past decade, a trend that I expect to continue. That growth, combined with rising populations and a trend toward urbanization, requires more infrastructure. … Of the 10 most populous countries in the world, eight are in emerging markets… These people need food, clean water, energy, roads and housing. …

    “Not only do emerging markets need infrastructure improvements, but globally, existing infrastructure in many developed regions has aged and is in need of significant repair, replacement or upgrade.”

    (Full article: http://mobius.blog.franklintempleton.com/2015/06/25/building-for-the-future-infrastructure-in-emerging-markets/?utm_medium=markmobius&utm_source=email🙂

  2. “If you were to take a look at the Society of American Engineers’ annual report for 2014, we’ve got a $2.2 trillion dollar infrastructure shortfall just in the US, and because of fiscal deficit issues, that will not be met.”

    “The upside is that funding for schools, roads, bridges, utilities, water and other vital infrastructure in both the US and Canada will have to come from private investment. Recent statistics suggest that one-third of the assets in Canada’s 10 largest public PENSIONS are directed toward …private equity, real estate and infrastructure.

    “So where are these infrastructure opportunities?” …. The article speaks of countries with strong rule of law and enforceable property rights. It continues by specifically describing sewage and clean running water (unclean water is #1 cause of death among emerging markets).

  3. A consortium of Canadian pension funds is in process to buy Britain’s London Airport. Despite the restrictions of such an inner-city airport, the intent is clear — to generate a sustainable and growing income for people drawing pension income. More on this infrastructure investment at: http://business.financialpost.com/investing/global-investor/canadian-pension-plans-buy-london-city-airport-but-the-rich-price-could-drive-its-biggest-customer

  4. Canada Pension Plan update ending 2016 suggests domestic infrastructure opportunities are too small to meet CPPIB criteria. Of CPP’s $300 Billion assets, 80% are currently outside Canada, with the goal to reach 85%. See more directly at this link in the Globe and Mail Nov 2/16: http://www.theglobeandmail.com/report-on-business/cppib-head-cautious-on-canadian-infrastructure/article32617837/ ….or shorter clips below from that article.

    “The head of Canada Pension Plan Investment Board is taking a cautious approach to infrastructure investments in Canada as it retools its portfolio to manage the challenging investment environment … (in terms of) its need for independence and evolving approach to risk. On the topic of infrastructure – a major, multibillion-dollar federal government spending priority – the pension fund said it would need to see investment opportunities that meet its specific criteria in order to participate in the spending boom.

    “CPPIB …buys portions of toll roads, shipping ports and pipelines in may parts of the world and receives a relatively steady flow of fees in return. The fund needs to write cheques for more than $500-million to make these investments manageable and worthwhile. …conditions rarely satisfied by the infrastructure assets available in Canada, although the largest infrastructure investment the pension fund owns is in Canada – the Ontario Highway 407 toll road. “That’s been one of the biggest challenges in Canada, and around the world, is there’s just not been enough of those scale opportunities in size, but also that are prepared for our type of investments” (Mark Machin, CEO).

    “When pressed on the stress that changes in government and policies would put on an infrastructure investment years in the future, Mr. Machin said this would be one of the major risks. “Infrastructure investments are, by nature, very long-term investments. And therefore the stability of regulatory regimes [and tax regimes] around those investments is very important,” Mr. Machin said.”

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