Infrastructure is always a hot topic around election season, and the 2020 presidential election is no exception. Both candidates have made big promises to ramp up infrastructure spending, even floating the possibility of an infrastructure bank. And where money flows, investment opportunities tend to follow.
Infrastructure is no longer just about roads and bridges — it encompasses everything from clean energy to broadband networks. We spoke with Josh Duitz, portfolio manager of the Aberdeen Standard Global Infrastructure Income Fund (ticker: ASGI) for Aberdeen Standard Investments, about what the election could mean for the infrastructure sector and where investors can look for the best investment opportunities. Here are edited excerpts from that interview.
Why is infrastructure top of mind in this election?
Economic recovery from the fallout of the coronavirus crisis is a key theme in this election season. While much of the economic stimulus to this point has focused on short-term solutions, both parties agree that an infrastructure stimulus package could facilitate long-term recovery and economic growth.
Getting Congress to agree on an infrastructure bill, however, a different story. With partisan politics reaching new highs, we’re not terribly confident in Congress to find common ground on infrastructure spending before the election. Therefore, the responsibility of determining a future infrastructure-investment stimulus plan will most likely rest on the shoulders of the election victor.
How are the candidates planning to leverage infrastructure to stimulate the economy? What do these plans mean for the infrastructure sector?
The overwhelming majority of public infrastructure investment happens at the state and local level. However, states and municipalities are in the midst of budget shortfalls thanks to the coronavirus pandemic. The infrastructure sector is in need of either direct federal investment, indirect federal investment through stimulus plans or a combination of the two.
Both Democrats and Republicans have plans for trillions of dollars of infrastructure spending. One possibility both parties have explored is the creation of an infrastructure bank. The government would fund this type of public bank, which would use public and private resources to fund infrastructure projects. If such an infrastructure bank were created, it would allow for increased private and public investment in this space.
Where do you foresee opportunities in public and private infrastructure markets around the election?
Opportunities for public infrastructure investment will remain largely at the state and municipal levels. Private infrastructure investment can be accessed in two ways: direct investment in private infrastructure companies or by investing in publicly traded infrastructure companies.
Investing in companies that focus on telecoms and renewables may present some of the most compelling opportunities, as we believe these two areas have been and will remain in focus in the short and longer terms.
What specific investments or investment vehicles do you suggest investors and advisors look at if they want to get into the infrastructure space?
Closed-end funds (CEFs) offer compelling opportunities to invest in infrastructure. Historically, private infrastructure investment has only been available to institutional investors. CEFs open this space up to retail investors as well.
It makes more sense for CEFs, compared with open-end funds and exchange-traded funds (ETFs), to invest in private infrastructure. This is because private investment in infrastructure tends to be illiquid. While ETFs require greater liquidity, CEFs work with a fixed pool of capital.
Within infrastructure, however, CEFs aren’t limited to private investments. They can also invest in public infrastructure or a combination of both private and public, which is unique to CEFs.
Any predictions for the rest of 2020 and beyond in terms of the economic recovery?
Telecoms, specifically towers, and renewables present opportunities for longer-term economic recovery and growth. We believe that these areas will remain critically important for the remainder of 2020, into next year and beyond.
Within telecoms, 5G development is a key focus. Both parties have pledged to help expand (the next-generation cellular networks) as part of infrastructure investment. President Donald Trump, for example, said last year that “secure 5G networks will absolutely be a vital link to America’s prosperity and national security in the 21st century” — remarks that the White House highlighted again this summer.
Meanwhile, former Vice President Joe Biden’s platform as the Democratic nominee calls for “expanding broadband, or wireless broadband via 5G, to every American.”
Expanding 5G cellular coverage requires a dense network of towers. However, building towers requires a huge upfront cost. The telecom industry has already invested heavily in these towers. A government-led investment could fuel a quantum leap in the nationwide rollout of 5G, accelerating the delivery of high-speed coverage to as many as 160 million people. The economic and investment implications are considerable: hundreds of thousands of U.S. companies could increase their achievement potential. Expanded 5G would also vastly expand access to education, particularly in rural areas, where internet and cell coverage is less robust.
We also see compelling opportunities in renewable energy investments such as wind and solar. As the demand for “cleaner” energy and more sustainable practices across all industries increases, so, too, will the need for renewables. Biden’s platform, for example, makes explicit reference to “green” infrastructure, from electrified transportation to energy efficiency investments.
Regardless of who wins the election, the renewables space is an area for innovation and opportunity that we think investors will be considering through the end of 2020 and further.
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