U.S. Infrastructure Investing 101

By: Frank_Holmes

When you envision America’s future, do you picture collapsing bridges, cracking dams and reoccurring brownouts? That’s certainly not the picture of America many would like to paint but it is a possibility if our country’s long-term infrastructure needs aren’t addressed.

A new article from researchers at the Wharton School of the University of Pennsylvania (America’s Aging Infrastructure: What to Fix, and Who Will Pay?) details the precarious nature of neglecting our nation’s network of pipelines, ports and power lines.
Here are some of the paper’s eye-popping statistics:

• The U.S. has about 2.5 million miles of natural gas pipelines operated by roughly 3,000 different companies. More than half of America’s natural gas transmission pipelines were installed before 1970.
• About 75-80 percent of the value of U.S. freight is moved via truck on our nation’s highways.
• Government mandates and subsidies have pushed alternative energy sources up to 17 percent of Germany’s overall power supply, while that figure is roughly 1-2 percent in the U.S.
• Less than 20 percent of America’s infrastructure is publicly owned.

President Obama has pledged $50 billion to rebuild 150,000 miles of roads, 4,000 miles of rails and 150 miles of runways but that’s only a fraction of the amount of investment needed. If America is going to give its infrastructure a comprehensive makeover, a considerable amount of investment will need to come from the private sector and this hasn’t happened yet.

Why haven’t U.S. investors embraced infrastructure investing?

A recent article from DealBook says that many of these private investors have found better opportunities abroad as foreign governments seek to privatize state entities, involve less politics and face fewer delays.

In our Global MegaTrends Fund (MEGAX), we employ a two-pronged approach to investing in infrastructure to offset some of the delays and disappointments often experienced with infrastructure investing.

First, we have taken positions in several infrastructure operators of toll roads, airports and utilities. In general, these companies possess stable cash flows, have regulated profits and pay a dividend.

One such company is Grupo Aeroportuario del Sureste, which operates airports in Cancun and southeast Mexico. As tourism traffic grows with an improving global economy and yield per passenger improves, so, in our opinion, should the company’s margins and profits.

Across the Atlantic, we’ve taken a similar position in Tav Havalimanlari, an airport operator based in Istanbul, Turkey. Tav is benefitting from Turkey’s 10.3 percent GDP growth (year-over-year) and overall growth in the region. Istanbul is only three hours by air from every major city in Europe and the airport has become a major transit hub for the region. In addition, Tav has stakes in the major airports of Macedonia, Georgia and Latvia.

Infrastructure opportunities aren’t always outside the U.S. border. Companies such as American Tower and Crown Castle provide much needed cellular and wireless infrastructure and are companies we currently hold positions in. There’s also pipeline operator NuStar Energy, which has more than 8,000 miles of pipelines and 93 million barrels of storage capacity around North America and overseas.

Second, we invest in the manufacturers and equipment makers that provide the heavy equipment needed to construct and maintain the world’s streets, sewers and electrical grids. Globally, many of these companies have seen a rise in equipment orders which has historically been a precursor to a pickup in construction activity.

The time to invest in America’s future is now, before the lights go out and the bridges fall down.

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