Another example is Transurban Group, which owns and operates toll roads in North America and Australia. It includes embedded CPI escalation across 68 per cent of its revenues with quarterly to annual toll price increases generally linked to inflation.
Infrastructure as a general asset class can help with inflation-linking, but we believe there is added benefit to focusing on real infrastructure assets, as they generally have a higher level of mechanical inflation linkage and lower sensitivity to market and economic cycles.
Within real infrastructure, it is important that investors take advantage of the themes that are correctly aligned with the current macro environment.
Sub sectors such as renewable energy, core, social and digital infrastructure are all appealing in that sense. The most ironclad opportunity however, is within the subsidised renewable energy generation space, where government sponsored schemes provide mechanical escalation in line with local inflation.
Investors need holdings within their portfolio that provide services which are required during an inflationary environment and recessionary periods. Real infrastructure assets fit the requirement.
It is physical infrastructure that is keeping the lights on, providing the medical, education and transport services required for society and communities to function during periods of inflation and recession. As part of a balanced portfolio, real infrastructure is well positioned to deliver returns for advisers and their clients.
Nick Scullion is a partner at Foresight Group
