Ideal investment for retirees

If you are retired or getting close to retirement at least part of your portfolio is likely to include investments that provide a long-term income stream and steady growth. In recent years the returns on bonds have been disappointing but the emerging asset class of infrastructure provides a possible alternative.

Infrastructure assets provide essential goods and services for businesses and consumers. Examples of infrastructure assets are roads, railways, water supply, power generation, airports, tunnels and mobile phone towers. These sorts of assets have a long life and usually have a monopoly.

In the past Governments have built, operated and maintained this sort of infrastructure but since the 1980s they have changed their focus. They see themselves as ‘regulators’ protecting the public interest rather than providers of infrastructure. Instead the private sector is buying and operating infrastructure and in the future will be building more and more of it.

Toll roads as an example
Whilst we may not personally like paying a toll, many road users recognise they save money by avoiding traffic congestion on alternative routes. There is no doubt that the characteristics of toll roads can make them an attractive investment. For instance,

• Toll road concessions are usually long-term - many for over 50 years, meaning the cost of the investment can be recouped over a long period.
• Cash flows are predictable as traffic flow increases. In the UK, traffic on motorways has increased every year since 1955. More traffic congestion will inevitably lead to even greater use of toll roads.
• Operating and maintenance costs are usually around 20% of revenue.
• Toll roads are managed under concessions agreed with Governments. This means that the way tolls are reviewed is set out in a legal contract.

A well managed infrastructure fund can be a valuable addition to anyone’s portfolio because it has a low correlation to other asset classes and improves diversification. Ask us about including infrastructure assets in your portfolio.

Source: Macquarie