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EM Chat: Industry Deep Dive – Infrastructure

HOSTS Alec Renehan & Bryce Leske|14 March, 2021

It’s an Industry Deep Dive episode! And it begins with a bit of a debate between Bryce and Ren about the very definition of today’s chat – Infrastructure – and just what qualifies?

To settle it, we looked to Macquarie, who say: “Infrastructure provides essential products or services which are necessary to support economic and social activity… Infrastructure typically has a strong strategic position (such as monopoly or duopoly). This is because significant capital is usually required to construct the assets, resulting in high barriers to entry for would-be competitors.“

And infrastructure is a favourite sector for Buffett as well, who said his favourite investment was the ‘only toll road into town’.

As promised, here’s the links and lists that Bryce mentioned:

  • Listed Funds
  • ETFS Global Core Infrastructure (CORE)
  • VanEck Vectors FTSE Global Infrastructure (Hedged) (IFRA)
  • Magellan Infrastructure Fund (Hedged) (MICH)
  • Vanguard Global Infrastructure Index (VBLD)
  • Individual companies (ASX ticker) – ASX Sector
  • Transurban (TCL) – Highways & Railtracks 
  • Sydney Airport (SYD) – Airport Services
  • APA Group (APA) – Gas Utilities
  • AusNet Services (AST) – Electric Utilities
  • Infigen Energy (IFN) – Independent Power Producers & Energy Trader
  • Atlas Arteria (ALX) – Highways & Railtracks
  • Spark Infrastructure Group (SKI) – Electric Utilities

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Bryce Leske: [00:00:57] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my Equity Mates Ren. How are you going? [00:01:12][15.0]

Alec Renehan: [00:01:12] I'm good, Bryce. I'm excited about this episode. We are bringing back an industry-deep dive. [00:01:18][5.9]

Bryce Leske: [00:01:18] Yeah, we haven't done one in a while. [00:01:19][1.0]

Alec Renehan: [00:01:20] Yeah, yeah. And it's an industry that, you know, we are interested in but probably haven't spoken a lot about on the show. Everyone loves tech. Yeah. We speak about tech a lot, you know, but tech is selling off a little bit recently. A few people are a bit nervous, extremely high valuations that, you know, everything needs to go right to justify some of them. And so we're going to the opposite end of the market. And we're saying, you know, basically every asset classes in an all time high, there's some risk. Look, I'm getting a bit nervous. And you've been a perma bear for the last, what, four years, five years calling a bear market every year. Twenty twenty one might be the year that I become the bear and get a bit nervous. And so the industry we're going to talk about today is on the more defensive side and may help calm my my nerves. [00:02:18][58.4]

Bryce Leske: [00:02:19] Yeah, this is right up your alley, is it? [00:02:21][2.0]

Alec Renehan: [00:02:23] Well, anyway, without further ado, the industry that we're going to be talking about today is infrastructure, infrastructure, housing, and infrastructure. And Bryce and I have had a bit of a debate around what even is infrastructure. So we'll be getting into all of that, how you can invest in it, what it is. But before we do a bit of housekeeping, and I can say Bryce is playing with his phone there and he's very excited. [00:02:46][23.3]

Bryce Leske: [00:02:47] Yeah, I am. [00:02:47][0.5]

Alec Renehan: [00:02:48] talk about a particular stock, so I'm going to shut up and let you have your moment. [00:02:52][4.6]

Bryce Leske: [00:02:53] Well, I'm just looking here. But anyway, our first point of housekeeping rent is the listener survey is still active. Yes. So please, if you haven't already head to our social media channels and there's going to be some links in our Instagram bio or on our Facebook discussion group where you can fill out our listener survey. And if you do complete it in full, you go in the running to win five hundred dollars. It'll really help us understand what we're doing. Well, at Equity Mates, what we could be doing better and to help provide content that is going to help you and your investing journey. So please head over and fill that out. [00:03:27][33.8]

Alec Renehan: [00:03:28] A few of the responses so far asking for crypto content. We've got a crypto email. That's where we're putting all our crypto content. At this stage. We're not going to do a spinoff podcast. But, you know, if that's what you want, keep sending us suggestions. And if you don't want it, make sure you fill out the survey so you can counter the weight of crypto requests coming through. Yes, but yeah, we you know, we do this for the Equity Mates community and, you know, we hope you guys get something out of it. And so tell us what you want us to do more of and what you want us to do. Less of a [00:04:02][34.4]

Bryce Leske: [00:04:02] second piece of housekeeping before we do jump into this is I just want to touch base on the stock of the year. You would know that. Well, for those that have been with us for a while at the start of the year, we both put forward our stock pitches and Alec put forward Tencent and I went a bit of paste and chose a stock that hasn't actually well, hadn't actually listed. Yeah. Hadn't actually listed. And that was roadblocks. It has been listed overnight through a direct listing in the United States. It didn't actually IPO. It kind of snuck on mid-session and it's now trading at about sixty-nine bucks. I think, to be honest, I'm not sure what it is listed at. But anyway, I'm active now. I run. [00:04:50][47.7]

Alec Renehan: [00:04:50] Well, yeah. And the thing is direct listings are there's no like IPO price. Yeah. The level sets, it's just like stock starts trading at a certain time and the market sets the price. Yeah, but I think the report was that it was up 55 percent from where it first traded to the end of the session from where it [00:05:09][18.7]

Bryce Leske: [00:05:09] first traded in the session. Market cap, 38 billion. It is the fastest-growing computer game in the world at the moment. And yeah, look, we're both live now. It is up. Yeah. Fifty-four percent. [00:05:19][9.9]

Alec Renehan: [00:05:21] So you're baiting me. Tencent was up about thirty percent. It's now up fifteen percent. 30 percent. Yeah. So not what I meant for new Equity Mates. My history is competition, [00:05:32][11.2]

Bryce Leske: [00:05:33] you know, maybe down sixty. [00:05:34][1.0]

Alec Renehan: [00:05:35] Honestly it's like the kiss of death if I use the. So hopefully Tencent keeps its head above water roadblocks very strong start [00:05:35][0.0]

Bryce Leske: [00:05:45] will it hold. Will hold little nervous. But anyway, look, we're both live. That's the main thing. Let's see how it goes. But let's move on to I guess what is the, the topic of the. And that is a deep dove into infrastructure. [00:05:58][12.6]

Alec Renehan: [00:05:59] Yeah, let's do it. So let's let's start with what is infrastructure? I guess we were having a bit of a debate about about what it was. Well, yeah. You know, remember, we well, I, I started by saying, you know, it's things like, ah, you know, like the companies like Transurban, Sydney Airport and I knew you were like Sydney Airport is an infrastructure. And then you were talking about like the material companies that. [00:06:26][27.7]

Bryce Leske: [00:06:27] Oh yeah, yeah, yeah, yeah. Well I was coming at it from an investment play and I can say, well let's get into this. [00:06:34][6.3]

Alec Renehan: [00:06:34] But well that's what we're doing. We're getting into [00:06:35][1.6]

Bryce Leske: [00:06:36] it. Yeah, I can, I think that when I think about investing in infrastructure, there are two ways to do it is the Transurban way, which is obviously building infrastructure and owning infrastructure, [00:06:49][13.7]

Alec Renehan: [00:06:50] owning and operating, [00:06:51][0.4]

Bryce Leske: [00:06:52] owning and operating infrastructure. You classify our airports in that which of course, obviously ports. But then also I think if, you know, the government was to come out and spend a lot of money on infrastructure projects, there are a lot of fringe companies that you can invest in that will benefit from the spending of infrastructure. So when I think about it from that point of view as well, it's the building of infrastructure as well that you can. [00:07:17][25.8]

Alec Renehan: [00:07:18] So you're thinking like the borel's. [00:07:19][0.9]

Bryce Leske: [00:07:20] the concrete companies, the construction companies, the surveyors of land and all those businesses that benefit from infrastructure projects, not only those that own and operate infrastructure. [00:07:32][12.3]

Alec Renehan: [00:07:33] So I get what you're saying. I would say that's the construction industry, not the not infrastructure. Yeah. [00:07:40][7.1]

Bryce Leske: [00:07:41] I mean, I'm not saying that they fall in the industry. It's it can be they are an infrastructure play. [00:07:46][5.6]

Alec Renehan: [00:07:47] OK, so for this for this episode, when we're talking about infrastructure, I think we're going to use my definition. OK, so what is infrastructure then, at least for this episode? Well, I mean, I'm going to read something that Macquarie wrote, because if we're not stealing from experts, what are we doing? There's no points for originality in investing. So per Macquarie, infrastructure provides essential products or services which are necessary to support economic and social activity. Infrastructure typically has strong strategic position, i.e. a monopoly or a duopoly. This is because significant capital is usually required to construct the assets, resulting in high barriers to entry for would be competitors. And there's a few other things that we can add to that. [00:08:31][44.3]

Bryce Leske: [00:08:32] But and by the way, Macquarie is one of the biggest infrastructure players in the world. [00:08:36][4.8]

Alec Renehan: [00:08:38] I love the idea that you can't have credibility in defining it unless you own a lot of it. [00:08:42][4.6]

Bryce Leske: [00:08:43] Well, yeah, true, [00:08:44][1.7]

Alec Renehan: [00:08:45] but yeah, I think so. It's probably best explained through examples. It's like so electricity, water, gas, utilities, energy pipelines, airports, somewhat controversially. But we won't worry about that. This is all toll roads are seaports, communications, infrastructure. [00:09:01][16.3]

Bryce Leske: [00:09:03] What about a wind farm? [00:09:04][0.7]

Alec Renehan: [00:09:04] Well, this is an interesting one. Would you say a coal fired power station is infrastructure or is it like electricity? Is it energy generation? Could be both. Yeah. And then like data centers. [00:09:18][14.0]

Bryce Leske: [00:09:21] Again, I mean. [00:09:22][1.1]

Alec Renehan: [00:09:24] You could be both. Yeah, so I think the point is there are some things that we know just naturally infrastructure like a toll road just makes sense. And then there are some which are infrastructure in the most natural sense of the word, you know, like the big capital intensive assets that that are built by, you know, governments or the private sector that have long lives and that, in theory, provide a long term stable revenue source. From an investment perspective, there are a few things that infrastructure is is really useful for. And some of those are edge cases like wind farms and data centers that don't quite fit as well. So, like I mean, let's talk about why you would invest in infrastructure so high capital costs, like they're very expensive to build. And then you classic examples of infrastructure have local monopoly. So Sydney Airport was or is still the only airport in town. Some of Transurban is toll roads. You know, it's not like another toll road can be built next door, the Port of Sydney, you know, the Port of Newcastle, like they own local monopolies. You can't just set up a startup hotel. So the combination of high capital costs and local monopolies create these high barriers to entry, which make them very defensible assets. So as an investor, you can invest in them and you can enjoy long term, predictable cash flow. And there's pricing power because of those high barriers to entry. And so you can increase prices with inflation. So think about toll roads. You know, we just interviewed an expert who was talking about Transurban tolls being nine dollars on a road closing. They can increase with inflation. And so getting back to the wind farms in the data centers point, it's like some of the elements of infrastructure from an investment lens are there with those assets, [00:11:25][121.5]

Bryce Leske: [00:11:26] capital into [00:11:26][0.4]

Alec Renehan: [00:11:26] capital intensive, long term, pretty stable and predictable cash flows. But at the same time, some of them aren't there. So like [00:11:35][8.9]

Bryce Leske: [00:11:36] any time to set up a data [00:11:37][1.0]

Alec Renehan: [00:11:37] center, not a center, contracts are relatively short term. Anyone can set up a competing data center, windfarm something. So, yes, they are infrastructure. Like if you went to the Department of Planning or Infrastructure Australia or you went to Scott Morrison, of course, wind farms and data centers would fall under his definition of infrastructure. As an investor, you can definitely invest in them and some of those companies are killing it at the moment. But in terms of. The key characteristics you're looking for when you're talking about investing in infrastructure there, some of them are there, some of them aren't. [00:12:15][38.1]

Bryce Leske: [00:12:15] Yeah, yeah. You know, we speak about companies with moats. And if you're looking at true infrastructure play, you know, a lot of these companies have pretty sizable moats. As you've already pointed out, the Transurban and the Sydney airports are starting up the barriers of entry a pretty high. So if you want a good example of a strong moat, then have a look at these companies. But on the flip side, again, at the same time, due to, I guess, the essential need for a lot of these infrastructure companies and developments, the government does play a pretty hands-on role compared to some of the other investments we can make. Yes. And that sort of can has impact. [00:12:59][43.8]

Alec Renehan: [00:13:00] It can. It can, I mean, in both the positive and the negative sense. So, I mean, the role of government is huge in infrastructure for obvious reasons. The biggest one being they build a lot of it. Yeah. The government builds it themselves. Or these days you say a lot of public partnerships where, you know, the government and Transurban work together to build a toll road or something like that. So due to the nature, like the nature of these services, like electrical utilities, water utilities, like, they're like key services. So the government heavily regulates then which in one sense can be bad for investors, probably good for society, definitely good for society. But for investors it means sometimes, you know, there's limits on how much you can raise prices and stuff like that. On the flip side, though, sometimes the best monopoly can be a government enforced monopoly, like if if you're the electrical utility or if your Sydney water, you can't you're not threatened by a rival water utility that thinks they can be more efficient and offer customers lower prices because like the government protects your water utility monopoly. Now, they're not privatized, I don't believe. But like if they were, then, yeah, I think a lot of the UK's water utilities are privatized at the moment, and it's. Yeah, but they're still protected by the government. Yeah. So, yeah, government plays a massive role. Um, I think I think let's before we just get too messy, let's just structure this. So we've talked about what is infrastructure. We've talked about on some of the reasons you would invest in the role of government. But let's just like quickly tick off maybe why it's it's an interesting asset class to invest in some of the risks, then talk about the industry outlook and then talk about some of the ways you can actually invest. So let's start with why you would actually invest. Like, why's that? An interesting asset class long term. [00:14:57][116.9]

Bryce Leske: [00:14:59] Stable, relatively. Yeah, as you've already pointed out, it also provides an opportunity to have that sort of government protection, so to speak, and in some well, most instances that provide a good return or income similar to a bond. People would equate them to a bond in the sense that you put them in for a long period of time and now just continue to take over and pay out a dividend. [00:15:27][28.8]

Alec Renehan: [00:15:28] Yeah, yeah. Massive dividend payers. Yeah, yeah, yeah. It's like, yeah, everyone talks about like stocks and bonds, like stocks being income, stocks being more growth. Infrastructure probably sits squarely between those two like it provides more income than a bond. Yeah. And it has less risk than equities. Yeah. But also less growth. Yeah. Yeah. [00:15:53][24.6]

Bryce Leske: [00:15:54] What about from your point of view, anything that I missed. [00:15:56][1.8]

Alec Renehan: [00:15:56] No, I think that's the main thing. I think, you know, that the interplay of and we can talk about this more later, but the interplay of inflation and interest rates and the valuation on infrastructure assets is really interesting and it will probably become quite relevant. But in terms of why you might look at infrastructure in an inflationary environment is if these assets have local monopolies, they can increase their prices. Like if Sydney Airport started charging Qantas more money to every time they wanted to land a plane or a taxi, a plane or a Qantas going to do. [00:16:36][40.0]

Bryce Leske: [00:16:36] Yeah, yeah, yeah. So we pulled a quote from Magellan about how they sort of speak about infrastructure and they say that it is an appealing asset class. When strictly defined, it delivers stable inflation linked returns above those offered by inflation linked bonds with risk below that of equities. So pretty much exactly what you've just said. [00:16:56][20.3]

Alec Renehan: [00:16:57] Actually, we've gone this whole episode without talking about Warren Buffett. One of his most famous quotes is his favorite investment would be the only toll bridge into town. [00:17:06][9.7]

Bryce Leske: [00:17:07] They go, yeah, well, he owns a railroad. [00:17:09][1.8]

Alec Renehan: [00:17:10] He does [00:17:10][0.1]

Bryce Leske: [00:17:11] energy. She and what's his other big insurance? Yeah, not quite. But he's got a big infrastructure play there. [00:17:18][7.7]

Alec Renehan: [00:17:19] But yeah, I think, I think like people conceptually get it like you. It's like it's roads, it's bridged, it's airports, it's sports like it's those big pieces of infrastructure. So they're the reasons why you would invest it. Let's quickly touch on the risks and then take a break. Sure. So the first I guess the first risk is boring. Oh yeah. [00:17:41][22.6]

Bryce Leske: [00:17:43] He wants to own a road. [00:17:44][0.7]

Alec Renehan: [00:17:44] It is quite boring. [00:17:45][1.0]

Bryce Leske: [00:17:46] Yeah, there is. But there is nothing wrong with that. I should caveat that there's I say that just because it's not like investing in the growth tech stocks, but they do certainly play a very important role in portfolios. [00:17:58][11.8]

Alec Renehan: [00:17:59] I think the biggest risk is like, what're your investing goals? Like if you're twenty and you want to, you know, grow and become a millionaire, like it's low growth, I think. And some of these companies find a way to engineer growth by buying more assets and stuff like that. But each piece of infrastructure in and of itself is is low growth. Yeah. Another risk to my mind is that they often get valuations wrong. So in theory, valuing a piece of infrastructure is conceptually straightforward because it's you can figure out the life of an asset. You can figure out how many people are going to use it, how many customers, whatever, and then how are they going to be charged for that? Or you can figure out like what the government's going to pay the utility and then you just do a discounted cash flow and, you know, you factor in any capital costs for maintenance and stuff like that. But people often get valuations of infrastructure wrong. A government massively overestimate how many people are going to use it and stuff like that. So, I mean, we're not in a position to buy infrastructure ourselves. We're not going to be dropping fifty billion on the Port of Sydney or whatever, maybe [00:19:03][64.0]

Bryce Leske: [00:19:03] maybe one day. [00:19:04][0.5]

Alec Renehan: [00:19:05] But that's something, you know, if you're investing in a fund, you're going to hope that you've got to hope they're good. [00:19:10][5.4]

Bryce Leske: [00:19:10] Yeah, yeah, yeah. Alright, well we'll take a quick break, and then we'll come back and have a look at the industry outlook for infrastructure. When you are all about getting fit, you've bought the garment, you bought the golf membership, you bought the gym membership and you're on the mind MasterChef and even in lock down last year, you bought those resistance bands of Instagram that from memory didn't even come. [00:19:33][23.2]

Alec Renehan: [00:19:34] No, look, they didn't come. But all of that effort really was canceled out by the numerous menu log orders that were a real staple of my lockdown experience. [00:19:44][9.5]

Bryce Leske: [00:19:45] Well, we've just headed into a new financial year, so I think it's time you get money fit with Virgin Money, our latest sponsor. [00:19:52][7.0]

Alec Renehan: [00:19:53] That's right, Bryce. With a high-interest savings account bundled with a seriously rewarding everyday transaction account, you can manage your money easily on the go smash your savings goals, and be rewarded for it. [00:20:05][11.9]

Bryce Leske: [00:20:05] And with the Virgin Money Go transaction account, you can earn rewards on your everyday spending with zero monthly fees. Sounds like just what you need, right? [00:20:14][9.3]

Alec Renehan: [00:20:15] Yeah, the FBI. Twenty one get Rhen didn't quite work, but if y 20 to get reward money fit might be to go [00:20:23][8.4]

Bryce Leske: [00:20:24] back to your own Bayt Virgin money terms and conditions and monthly criteria apply. Now let's get back to the show. So the industry outlook ran, obviously, with a lot of covid sort of spending coming through from big government at the moment. Infrastructure is always where governments turn generally to try and boost economy, pour money into the building of new roads, new railways, new ports. So it's no surprise that we're sort of starting to see that at the moment. And the supply and demand dynamic of infrastructure is pretty fascinating. [00:21:02][38.1]

Alec Renehan: [00:21:04] Yeah, yeah. Let's start with the supply. So the amount of infrastructure being built or being made available to invest in your right, like let's build our way out of a recession is classic. Classic. [00:21:17][13.2]

Bryce Leske: [00:21:18] What's your utopia on eBay. Yeah. To get it, you get an insight into how that works. [00:21:22][3.9]

Alec Renehan: [00:21:23] There was a running joke when Trump was in office that he was about to do Infrastructure Week, and it was like it was one of the first things on his agenda. The wall. Yeah, well, yeah, that is our infrastructure. [00:21:36][13.2]

Bryce Leske: [00:21:38] Let's not go down the rabbit hole [00:21:41][2.5]

Alec Renehan: [00:21:41] of when Steve Bannon, first thing he wanted to do was infrastructure because he thought it would bring both sides of America together, fix that crumbling infrastructure, pinguin trillion dollar infrastructure package. For years, the administration kept saying it's about to be infrastructure weak. We're about to do it. Never happened. Now Biden is talking about doing a trillion dollar plus infrastructure package. Same thing. I mean, he probably can stay focused longer. He is [00:22:05][24.4]

Bryce Leske: [00:22:07] likely to get it [00:22:07][0.7]

Alec Renehan: [00:22:07] done. But yeah. So the US probably going to do a big infrastructure bill soon. A lot of the rest of the world probably going to do something similar to stimulate the economy. You know, China's building, we're saying iron ore prices rise on the back of demand for more steel and stuff like that. So the world, the world is getting ready to build. McKinsey did a study and suggest the world needs to spend five point five dollars trillion US dollars to upgrade infrastructure. KPMG did a study and suggested that Asian developing Asian countries need to spend one point seven trillion a year for the next decade to maintain growth and to maintain GDP growth. [00:22:46][38.5]

Bryce Leske: [00:22:46] Yeah, one point seven trillion. Yeah. Wow. [00:22:48][2.1]

Alec Renehan: [00:22:49] And so per year. Yeah. Over the next decade or so, it's just like that's not good. There's a feeling that we should build to stimulate growth out of covid and there's also a need to build like, you know, Italy had the bridge collapse. The US infrastructure is crumbling, like there's a lot of need to build more infrastructure. So on the supply side, I guess the need to build more infrastructure is one thing. The other thing to think about when we're thinking about industry dynamics is privatization of infrastructure. And that's been, what, the last 30 years in Australia, we've privatized a lot of infrastructure, um, ports, rail [00:23:32][42.8]

Bryce Leske: [00:23:34] post is on the chopping block, not infrastructure. [00:23:35][1.4]

Alec Renehan: [00:23:36] The Telstra, Telstra, I mean, maybe I mean, like some like NBN is infrastructure. Yeah, yeah, yeah. I think it's infrastructure. I like I don't [00:23:48][12.4]

Bryce Leske: [00:23:49] I don't I don't think it does pay a dividend anyway. Um so that's the supply side. [00:23:54][5.0]

Alec Renehan: [00:23:54] Yeah. And so yeah. On the supply side there's need to build, there likely will be more building, things will get privatized, although we've privatized a lot already there. And New South Wales want to privatize the busses. Structural, not infrastructure, not infrastructure. Let's talk about the math. [00:24:12][17.8]

Bryce Leske: [00:24:13] Yeah. So you've just said that one point seven trillion per year needs to be spent. And there's obviously that's the supply side. But where is all of this money coming from? Is there a desire to spend this or is there demand to actually do it? [00:24:26][13.4]

Alec Renehan: [00:24:27] Yeah, well, I was thinking about demand in a different way. I was thinking about demand in terms of investment demand, [00:24:32][5.6]

Bryce Leske: [00:24:33] OK, which I'm sure there is plenty of given the Canadian pension. Yeah. Yeah. Well, that's the Norwegian [00:24:39][6.1]

Alec Renehan: [00:24:40] that's exactly in my mind. Went as well. Canadian pension funds. Yeah. Not not any other countries. Pension funds. [00:24:44][4.5]

Bryce Leske: [00:24:45] Canadian well they're spending billions and billions and billions in this space. There is. There's money everywhere. Yeah. And obviously there are huge pension funds around the world. No longer can be looking at the investments in the Woolworths and Coles of the world because they just can't spend enough money and infrastructure projects where they can turn to spend money and invest and support these sorts of projects. So I'm assuming that's what you mean by demand. [00:25:13][27.7]

Alec Renehan: [00:25:13] Yeah, there are just massive pools of capital chasing long-term stable inflation protected investments. Yeah. Canadian pension funds, Australian super funds, private equity. There's just so much capital in the world at the moment and capital, so mobile now that, you know, it's truly borderless, like, you know, it's there's ASX listed companies that operate roads in the US and stuff like that. It's just, you know, everyone's looking for places to park their money. And you're right, rather than trying to put it all into large-cap stocks, like the amount of money that these pension funds, superannuation funds, and stuff are looking to spend, infrastructure is a real natural home for them. Yeah. And so when we're talking about the supply and demand dynamics of infrastructure, Magellan did a really interesting piece on the UK water utilities and the valuations that they're getting, because there's a couple of the two, I think, to the to publicly list and then a bunch of a private but have had transactions, um, and the private ones, which in theory should be valued. Cheaper than the publicly listed ones, because there's like an illiquidity discount, like it's harder to buy and sell it. So the value should be less in theory that would like being bought and sold for so much higher than their publicly listed peers just because there's so much money chasing, you know, stable long term infrastructure assets. So if you have a super fund in Australia, if you have a 401k in the US, if you have any form of retirement saving around the world, you're probably exposed to infrastructure through these retirement funds. [00:26:54][100.9]

Bryce Leske: [00:26:54] Yeah, big investment banks. So let's move on and close out the episode with obviously the most important piece ran as retail investors. How can one actually get involved in infrastructure and what are the investment options? Yes, obviously, Sydney airports, Suweidi as [00:27:19][24.8]

Alec Renehan: [00:27:19] the price gusto for this episode has been so low ever since he realized that he might have to acknowledge that Sydney Airport is the infrastructure. Yes, at a high level, I think the options are infrastructure stocks themselves. We'll get into that. Yeah. Then there are infrastructure unit trusts, listed infrastructure funds. So like Elyse's, they invest in infrastructure, unlisted infrastructure funds. So you've got to [00:27:52][32.8]

Bryce Leske: [00:27:52] go through the big banks to get that investment. Yeah, well, [00:27:55][3.2]

Alec Renehan: [00:27:55] like Magellan has one, but those might be listed now as well. Yeah. This is listed. I'm pretty sure Macquarie has a bunch of unlisted infrastructure stuff. Ausbil, you know, we've spoken to Tobias Boxes, a small house manager there, but they have infrastructure funds. There's hate out there. And then there's a bunch of other unlisted ones. Then there's also a few ETFs. So I went on the ASX website and they've got a page that lists all of them for some reason they call them infrastructure funds. But like, it's just the. Actual stocks, it's not like Elyse's included. [00:28:33][37.7]

Bryce Leske: [00:28:34] So we'll take that up with the ISO, [00:28:35][1.4]

Alec Renehan: [00:28:37] so seven ASX listed infrastructure companies, Transurban actually. And, you know, I'm pretty sure there's more that I can think of. Like they've got Sydney Airport listed, but they don't have Auckland International Airport. [00:28:48][11.1]

Bryce Leske: [00:28:49] Oh, hold on. So maybe Sydney's to be on there. [00:28:51][2.3]

Alec Renehan: [00:28:52] Well, we'll take it out with the ASX one. But according to the ASX, the seven that they've got listed are Transurban Group, ASX Ticker, TSL, Sydney Airports, Sweida Spark Infrastructure Group. České Eye, Atlas A. Elex, Infigen Energy, Ifan, AusNet Services IEA and APA Group API. So there are a few other individual companies that you can invest in. Obviously, Transurban and arguably Sydney Airport are the biggest. [00:29:25][33.1]

Bryce Leske: [00:29:27] Yeah, well, yeah. Now we'll make sure we've got those in the show notes of just throwing them down in our notes now. So if you did want to have a quick squeeze of what we've just spoken about there so that [00:29:38][11.6]

Alec Renehan: [00:29:39] they'll be in there. Yeah. So they're the individual companies. There are also some ETFs and funds. This list is by no means exhaustive, but ETF Global Core Infrastructure Ticket core is HCF Vannak Footsie Global Infrastructure Ticker, IFRA a global infrastructure index, they built the have a listed infrastructure fund. Erm I say basically there's a bunch, then there's also companies that are just heavily exposed to infrastructures like Macquarie and stuff like that. Yeah. Macquarie did have a listed infrastructure vehicle, didn't, but from what I could tell it's no longer listed. [00:30:23][43.6]

Bryce Leske: [00:30:23] Publicly listed. I'm actually not sure. And then of course when you can't forget, as I said right at the start, if you think about it in a little bit of a different way and you want to take advantage of the infrastructure spending that is going on, think about the companies that will be exposed to that spending. It's the construction companies that, as we said at the start of the episode. So don't just limit yourself to thinking direct infrastructure play, but they don't have the same characteristics that obviously just spoken about. That's the main thing to remember quickly to close out ran. Do you own any infrastructure? [00:30:57][33.7]

Alec Renehan: [00:30:58] Uh, yes, I bought some Sydney airport. Well, so I own infrastructure. I'll leave that up to you because I bought some Sydney airport at the depths or like as Clover's started to recover. Yeah. Uh, I don't own any Transurban. I own Macquarie Group like a parent bank, and I owned Magellan Group. So I guess there's some exposure to the performance of infrastructure. Um, but you're not hype's. [00:31:28][29.9]

Bryce Leske: [00:31:29] Yeah. Same don't have Sydney Airport because it's not an infrastructure play and um but I do have Macquarie. But otherwise look I've, I've enjoyed doing this because something I haven't really paid it too much, I sort of research attention to, I think primarily because of the function of infrastructure within a portfolio and for what I'm trying to get out of my portfolio. I don't think it plays a huge part at this stage in my investing journey. Yeah, like if [00:31:55][26.4]

Alec Renehan: [00:31:55] you were if you were moving to from, like, grow, what do they call accumulation phase retirement sort of like then when income becomes more important, infrastructure probably plays a bigger role. But. Well, actually, I was going to ask you this. How do you think about infrastructure in terms of diversification? Like if I own a bunch of ASX 200 stocks and then I own some infrastructure stocks, am I diversified? Well, I more diversified, [00:32:23][28.0]

Bryce Leske: [00:32:25] honestly, if we're talking Australia and ASX 200, you're going to get all the infrastructure players anyway. [00:32:30][5.1]

Alec Renehan: [00:32:30] Yeah, yeah, yeah. Well, it's OK. The question was, Paul, that's on me. It's more like, do you think of infrastructure as a separate asset class? [00:32:38][7.1]

Bryce Leske: [00:32:39] I know what you're getting at it. Yes. Yeah, I do. In the way that it functions in a portfolio, in the way that people the reasons that people buy it and the reasons we've spoken about in this episode, the characteristics of it and why it is generally seen is that middle ground between a bond and equity in some. Yeah, it's its own sort of. Pseudo asset class, yeah, [00:33:07][28.2]

Alec Renehan: [00:33:08] yeah, in some ways it moves differently, it's uncorrelated to stocks in some ways. Then there's this whole interest rates, inflation, and infrastructure discussion that I'm guessing you don't want me to get. [00:33:22][14.3]

Bryce Leske: [00:33:22] No, no, no. First, then we've reached the end of the episode. Right. I'm sorry. I'm going to have to cut and I have to cut you off there. But if you'd like to hear more from Rhen, I'll give you his mobile number and you can give him a call. [00:33:34][11.5]

Alec Renehan: [00:33:36] Look, very quickly. Infrastructure is it has pricing power, so it's inflation-protected. But if interest rates rise, the cost of capital increases and returns on a relative basis compared to like bond yields and stuff also changes. How? Twenty-five words. I don't think you do that. [00:33:52][16.6]

Bryce Leske: [00:33:53] But look, that does bring us to the end of the episode. I hope you've managed to get something out of that that is helping you and your investing journey. And if the infrastructure is something that you've been looking to put into your portfolio, I'm hoping we've been able to break it down in a way that is a bit more manageable and understandable for you. [00:34:11][17.7]

Alec Renehan: [00:34:11] And if there are any of those Canadian pension funds out there that are looking for places to park some cash hit us up. Yes, yes, yes. [00:34:20][8.3]

Bryce Leske: [00:34:21] A reminder to everyone that we obviously do have a comedian, a Canadian economist. We also have Mapei love and get started investing in the Equity Mates media podcast network. So if you're looking for some more podcast, I guess stuff to listen to, go and go and listen to the podcast stuff. [00:34:39][18.8]

Alec Renehan: [00:34:40] That's not very good, is it? What else would you be looking for? [00:34:42][2.6]

Bryce Leske: [00:34:43] Possible trying to listen to your question. [00:34:45][2.0]

Bryce Leske: [00:34:47] Head to our website if you'd like more information or you can hit us up with an email at contacat@equitymates.com But as always, great to chat stocks Ren and looking forward to next week. [00:34:57][10.3]

Alec Renehan: [00:34:57] You've nailed your tight intro. But anyway, until then, good to chat [00:34:57][0.0]

[1945.9]

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Meet your hosts

  • Alec Renehan

    Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

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