Real estate isn’t the only asset allocation in town that can give investors real asset exposure to hedge against inflation. Infrastructure is also a niche sector that investors may want to consider during today’s economic times.
In a podcast, Larry Antonatos, managing director and portfolio manager at Brookfield Asset Management, noted that infrastructure could still perform even during times of slower growth. Talks of “stagflation” have already entered the capital markets, which is a condition where inflation is high along with slower growth.
“Infrastructure tends to be more defensive and less sensitive to the broader economy, Antonatos said,” an Advisor’s Edge article notes. “Demand is steady as infrastructure provides essential services, often with regulated pricing and little competition.”
In terms of being an inflation hedge, one thing to note is that “70% of infrastructure cash flows are regulated or tied to contracts that allow for price increases tied to inflation.” In essence, cash flows come with a built-in inflation hedge.
Infrastructure equities exposure can come from various stocks, but to get diversified exposure, there’s the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA ). Investors can also get country exposure with the fund’s holdings in other countries such as Canada and Japan.
NFRA seeks investment results that generally correspond to the price and yield performance (before fees and expenses) of the STOXX® Global Broad Infrastructure Index. The index reflects the performance of a selection of companies that, in aggregate, offer broad exposure to publicly traded developed and emerging market infrastructure companies, including U.S. companies, as defined by STOXX Ltd. pursuant to its index methodology.
“We believe that the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA) provides investors broader access to the evolving global infrastructure market,” FlexShares said. “At the same time, it offers diversification across multiple dimensions to help mitigate the risks common to infrastructure investments.”
“This approach is designed to offer a combination of potential risk mitigation and true global diversification that can help investors pursue their goals of portfolio diversification and income potential, along with potential protection against the risk of long-term inflation,” FlexShares added.
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