The topic of infrastructure spending has picked up dramatically over the past year. Both presidential candidates touted big plans seemingly trying to one-up each other on whose plan was biggest and most beneficial to voters.
The Trump Administration’s proposed infrastructure plan targeted $1 trillion in spending over 10 years and included plans for expedited permitting, rural projects, workforce training and apprentice programs, and hundreds of billions of dollars in spending on both a local and national level (50 of the projects laid out by President-elect Trump can be found here.)
But even more immediate is the fact that infrastructure spending is hot. With a global economic rebound well underway, there has been an economic surge in traffic on highways with miles driven at all-time highs helped by low gasoline prices, and record airport and port container traffic to the benefit of infrastructure plays.
The S&P Global Infrastructure Index is up nearly 16% year-to date and nearly 18% since the presidential election last November. As of 8/10/17 our Alpine Global Infrastructure Fund (AIFRX/AIAFX) is up 19.16% year-to-date and 20.12% since Election Day (click here for standardized performance). We continue to think that infrastructure plays have a long runway and will likely continue to enjoy major secular tailwinds including the continuing global economic expansion, historically low global interest rates, global fiscal stimulus and the increasingly bipartisan support for undertaking such projects in the U.S.
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There is no shortage of “shovel-ready” projects that could use money to be appropriated both here and abroad. The American Society of Civil Engineers estimates that in the U.S. alone, there is $4.6 trillion dollars needed for repair and upgrade to America’s infrastructure, and gives the current status of infrastructure in the U.S. a grade of “D+” in its most recent report card (see Exhibit 1).
Exhibit 1: Infrastructure Report Card
|Public Parks & Rec||C-||C-||C-||D+|
|Cost to improve||$1.3T||$1.6T||$2.2T||$3.6T||$4.6T|
The subject of infrastructure spending is a popular one across both parties, and with the electorate, as more than $200 billion of funds was approved for infrastructure spending locally this past November at the ballot box.
Public-Private Partnerships (PPPs) will likely continue to play an important role in infrastructure spending moving forward throughout the world. A PPP is where a public entity brings in a private partner to help with the technical and/or financial aspects of a major project. While they are utilized in the U.S. (the LBJ Expressway in Texas), they are more heavily utilized overseas (Heathrow Airport in the UK and Charles de Gaulle Airport in France and numerous highways and bridges for example).
LaGuardia Airport in New York is having its main terminal renovated through a PPP and other projects throughout the country are being planned as well. The long lives and stable cash flows that are often protected by regulatory and contractual terms along with high barriers to entry (sometimes even monopolistic barriers) make them attractive investment ventures for private funding. The offset of the cost to taxpayers often make them politically and fiscally more palatable to politicians as well. We think PPPs, and related infrastructure stocks, will play an important role and benefit from these spending trends given historically low global interest rates and often generous dividend yields associated with them.
A stock we currently own and that typifies the infrastructure trends and public-private partnerships we have discussed is Spain-based Ferrovial (FER SM – €18.50). Ferrovial owns toll roads in Canada and the U.S. including the 407 ETR in Toronto, the LBJ Expressway in Texas and most recently the I-66 Highway in Virginia. For the I-66 Highway, Ferrovial paid $500m and will put in several billions of dollars to add 2–3 lanes in exchange for a 50 year toll concession. Future traffic and toll increases should continue to help results be a win for drivers with a better road, taxpayers who won’t have to foot the majority of the cost, and the local Gross Domestic Product (GDP) for a major infrastructure improvement. Ferrovial also owns a portion of Heathrow airport as well as numerous roads and bridges in Europe. We like the steady cash flow and 3.4% dividend yield.
Global infrastructure does not have to be all roads and bridges and concrete. An important part of infrastructure is wireless voice and data and American Tower Corp. (AMT – $138) is a key provider of this infrastructure throughout the world. AMT is a provider of towers serving the wireless and broadcast industries with over 140,000 towers worldwide. The secular trends of greater than 50% wireless data growth and fairly predictable revenue growth due to long-term lease agreements with baked-in price increases is translating into > 10% earnings and free cash flow growth. This could be further bolstered by the U.S. Government’s recent award to AT&T for its First Net Program6 (a PPP by the way) for major infrastructure improvements to the first responders’ network. AT&T will be spending $40B coupled with the U.S. Government spending another $7B on this project — some of which will go towards towers and therefore likely AMT. In addition, AMT yields 1.9% and has doubled its dividend in just the last three years.
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Earnings Per Share is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability.
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Alpine Global Infrastructure Fund Top Ten Holdings (As of 6/30/17): Cosan Logistica SA, 2.92; Canadian Pacific Railway, Ltd., 2.47; Ferrovial SA, 2.45; Veolia Environnement SA, 2.40; East Japan Railway Co., 2.31; American Tower Corp., 2.27; Enbridge, Inc., 2.24; Crown Castle International Corp., 2.21; Norfolk Southern Corp., 2.17; NextEra Energy, Inc., 2.13.
References to specific securities are not intended and should not be relied upon as the basis for anyone to buy, sell or hold any security.
S&P Global Infrastructure Index is a total return index that is designed to track 75 companies from around the world chosen to represent the listed infrastructure industry while maintaining liquidity and tradability. To create diversified exposure, the index includes three distinct infrastructure clusters: energy, transportation, and utilities. Net Total Return (NTR) indexes include reinvestments of all dividends minus taxes.
MSCI All Country World Index is a total return, free-float adjusted market capitalization weighted index that captures large and mid cap representation across 24 Developed and 21 Emerging Markets countries. With 2,483 constituents, the index covers approximately 85% of the global investable equity opportunity set. Source: MSCI. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder.
Alpine Global Infrastructure Fund is subject to the risk of concentrating investments in infrastructure related companies, which makes it more susceptible to factors adversely affecting issuers within that industry than would a fund investing in a more diversified portfolio of securities. These risks include high interest costs in connection with capital construction programs and the costs associated with environmental and other regulations. The Fund invests in foreign securities which involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in emerging markets. The Fund’s strategy of investing in dividend-paying stocks involves the risk that such stocks may fall out favor with investors and underperform the market. In addition, there is the possibility that such companies could reduce or eliminate the payment of dividends in the future or the anticipated acceleration of dividends could not occur. Medium- and small-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. The Fund may participate in initial public offerings (“IPOs”) or Secondary offerings which may result in a magnified impact on the performance of the Fund. IPO’s and Secondary offerings are frequently volatile in price and may increase the turnover of the Fund, which may lead to increased expenses.
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