How US Infrastructure Can Benefit Your Portfolio

With US equity and fixed income markets generating negative outlier returns in 2022, the 2023 year-to-date performance of both assets classes has been a welcomed sight for most investors. However, the US Infrastructure asset class has been performing comparatively well thus far in the year; building on the noticeably strong performance exhibited in previous years. 

As observed from the chart above, US infrastructure as an asset class performed well in 2021 and 2022, relative to US equity and US fixed income. Thus far in 2023, the performance of the asset class has been noteworthy, as it can be a meaningful contributor within a balanced portfolio.

As mentioned in a previous article, infrastructure is classified as an alternative asset class, as such its returns are often uncorrelated with traditional asset classes.  In the current inflationary and rising rate environment, integrating alternative assets such as infrastructure into one’s portfolio can prove beneficial, as it acts as an inflation hedge while also providing stable cash flows and capital appreciation. As demonstrated in the following chart, the inclusion of US infrastructure within one’s current portfolio allocation can be a performance additive.    

In looking at the recent performance of a portfolio that has moderate (~ 40%) US infrastructure exposure, it has either performed similarly or better than a 60% Equity/40% Fixed Income portfolio. The strong demand for construction equipment and services in recent years, along with the constructive legislative actions that have been passed in the US, are benefiting the industry and asset class as a whole. Recent price increases for construction materials such as steel and concrete directly boosted the top and bottom lines for suppliers through much of 2022. Although supply chain disruption translated into higher production and shipping costs for equipment manufacturers, these companies were able to pass costs along to customers to preserve margins during a period of high demand. From a legislative standpoint, the passage of the Infrastructure Investment and Jobs Act and CHIPS Act will boost domestic construction, further elevating industry stakeholders as a whole.