All eyes are on Congress to see which of the various and vast infrastructure-stimulus proposals will eventually materialise. Although there is broad bipartisan support for infrastructure-driven stimulus, there are ample challenges, not least over how such mammoth spending will be funded. The devil – and the investment opportunities – will be in the detail.
But whether or not Washington manages to unleash stimulus on this scale, we’re already seeing a colossal wave of infrastructure investment – not just in the US but around the world. The rollout of 5G is creating a wealth of investment opportunities. It will also prove profoundly transformative.
It can be hard to imagine just how influential infrastructure programmes can be. Take a quintessential image of America: fast cars, wide spaces and the open road. But until the Federal Highway Act of 1956 brought in the Interstate Highway System, road travel in the US was often onerous, congested and slow.
The 1956 Act, and the frenzy of road-building that followed, transformed the US. Trucking boomed, the suburbs expanded and a new roadside ecosystem evolved: restaurants, amusement parks, motels and malls. Essentially, the Act put the automobile at the centre of American life.
Just as the Highway Act made the US of today, so 5G will create the world of tomorrow. The rollout of 5G networks will vastly improve broadband speeds and launch a new wave of innovations. And just as no one could have predicted 20 years ago how radically smartphones would reshape our lives, so we may not know exactly what 5G will do. But we do know that it’s going to be big.
In the short term, 5G will iron out so many of the irritations that we’ve experienced during lockdown: unreliable connections and overloaded networks. In the longer term, it will facilitate everything from smart cities to remote surgery to driverless cars. The combination of high-speed data with artificial intelligence offers almost limitless possibilities.
So how should investors look to benefit from this epochal shift? Perhaps the clearest opportunity comes from the infrastructure that will carry 5G signals: wireless communications towers. In the US, there are 150,000 of these towers, with around 95% owned by private operators. In Europe, however, there are 350,000 towers, of which just 20% are privately operated. That leaves substantial room for Europe to catch up – and for investors to get involved.
So how should investors look to benefit from this epochal shift? Perhaps the clearest opportunity comes from the infrastructure that will carry 5G signals: wireless communications towers.
There’s also abundant demand. At present, some 10% of people in Europe have no home broadband. That’s a significant unanswered need that will require thousands of new wireless towers to address. And that demand will be all the more urgent as more of our day-to-day life moves online and if working from home remains the ‘new normal’ in the wake of Covid-19.
And crucially, in an income-hungry world, communications towers offer attractive yields that will be well supported by the growing demand generated for 5G.
Not all of today’s infrastructure opportunities come from 5G, of course. Renewable energy is another prime area of interest. The European Union’s Green Deal – which has pledged to cut emissions of greenhouse gases to net zero by 2050 – is an obvious area of focus here. To achieve this ambitious goal, investment of as much as €7 trillion will be required. Almost half of this is to be spent on utilities. Meanwhile, the US currently generates just 10% of its power from renewables. But that figure is set to grow to 30% by 2030. By 2050, renewable capacity is projected to be 11 times its current level. All of this offers infrastructure investors attractive points of entry.
Clearly, the growing adoption of renewable energy is good for the environment. But, crucially, renewables now make economic sense too. In many countries, coal and gas are now more expensive sources of energy than onshore wind power and solar photovoltaic cells. That should make renewable infrastructure a solid source of investment returns.
And whether or not the US can pass its mooted infrastructure package, abundant stimulus is being deployed elsewhere to combat the effects of Covid-19. The European Commission has announced €750 billion in stimulus measures, for example, and Germany’s government has proposed an additional €130 billion. Meanwhile, China is spending $1.4 trillion on new infrastructure, covering 5G, electric vehicles and high-speed rail.
All of this makes a compelling case for investing in infrastructure. The wrangles in Washington concern just a fraction of the opportunity. Given the potential of 5G and the example of 1956, infrastructure investors have ample grounds for excitement as they look to the road ahead.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
Infrastructure-related issuers may be subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic slowdown, surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors.