There are multiple ways of investing in infrastructure, ranging from owning infrastructure shares through listed infrastructure funds and unlisted funds that directly own the assets. This post covers the list of ASX infrastructure shares for those looking to take direct equity positions.
ASX infrastructure shares are a continuation of our series highlighting the different companies listed on the ASX by sector, from healthcare, mining to BNPL shares.
ASX Infrastructure Share List
Infrastructure shares represent a class of companies in which the earnings are sourced from ownership of physical assets which can be characterized as a monopoly in nature and inflation-linked cashflow.
They are built and primarily targeted towards income-focused investors and those that are looking for defensive or conservative investments in the portfolio.
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Infrastructure Sub Sectors
The infrastructure sector covers a large swath of the market. The companies can provide a common macro exposure being sensitive to economic, population growth, inflation expectations, and most importantly, interest rates. But there are still major subtle differences between the infrastructure shares.
Infrastructure Sectors
- Toll Roads – Toll roads are perhaps the most common type of infrastructure shares listed on the ASX. Given Macquarie’s long history and pioneer nature of monetizing infrastructure, toll road shares have been a staple of the ASX infrastructure sector. This sector is best represented by Transurban (ASX TCL) and Atlas Arteria (ASX ALX). For example, the Transurban dividends’ consistency shows the attractive nature of owning infrastructure shares from dividend investors.
- Airports – Sydney Airport (ASX SYD) and Auckland Airport (ASX AIA). As mentioned above, the cashflow’s defensive nature for infrastructure shares comes from the asset’s monopolistic nature. Airport assets are one of the best examples of a monopoly wherein in any given city; there is usually one or two at most airports in operation at any time. The sector has an extremely high entry barrier, and the existing operator’s ability to set its own pricing means the cashflow can be protected from inflation.
- Railways – Aurizon (ASX AZJ). Railways similar to toll roads are existing assets that cannot be replicated in the current market even with a significant investment commitment. There is an element of operational exposure as these companies, in most instances, own the rolling stock (rail carriages).
- Ports – Qube holding provides unique exposure to ports and freight forwarding segment of the infrastructure sector.
- Utility Infrastructure – Utility shares provide investors operational exposure of electricity generation and retailing. Another facet of utility exposure is the ownership of the infrastructure of these essential services, which enable the transport of either electricity (electric power transmission) or the feed-in fuel (gas) between the users and producers. This is perhaps best represented by APA, which owns Australia’s largest natural gas pipeline network and Spark infrastructure.
- Telecom Infrastructure – Similar to the above, telecom infrastructure owns the distribution network for the telecom network. This range from cable, fixed to wireless networks and towers.
Infrastructure Operations
The above highlight the main types of infrastructure shares. The description shows while the sector is defensive, there is also a degree of operational risk. Infrastructure companies are not like owning an ASX REITs that collects the rent. There is a wide spectrum of the operational aspects from low (toll roads, utility infrastructure) to high (airport and freight forwarding) of owning infrastructure assets.
The main trade-off from taking the operational risk is that there is a greater potential to increase the asset’s overall income above the existing services’ inflation-linked pricing. The greater avenues in creating value, the more valuable the management team’s hands-on management is in running the company.
Diversified Infrastructure
Aside from Sydney airport, most of the infrastructure shares are diversified with multiple assets in the portfolio. However, sometimes it pays to add a further diversification layer across the various sub-sectors and country exposure. This is where the listed infrastructure funds or ETF adds the most value. The listed funds provide instantaneous diversification across sectors and geography.
Unlisted Infrastructure Funds
The main downside of being a retail investor is the limited opportunity to invest in infrastructure funds directly. The main attraction of owning unlisted infrastructure funds is it represents a direct ownership in an asset and can provide a greater level of control. The main route for Australian investors is through the super fund route however the option outside of the superannuation investment environment can be limited.