Use three Guide to Alternatives slides to support client conversations on the opportunities in infrastructure.
Global infrastructure requires significant capital
Industrial policy has had a resurgence in the U.S., Europe, Japan and India as countries invest in their physical and digital infrastructure. It is estimated that the average annual infrastructure need to maintain and upgrade traditional transport and utilities is $3.6 trillion. Many countries also have ambitious targets for net zero carbon emissions, which entails significant investment in renewable energy, the grid and EV charging infrastructure. Together, this creates a massive structural tailwind for demand for infrastructure assets.
Exhibit 1: Average annual infrastructure need
USD trillions, constant 2017 dollars, October 2017
Exhibit 1 source: McKinsey, J.P. Morgan Asset Management. Data are based on availability as of November 30, 2024. Guide to Alternatives, page 42.
Stable income and diversification have been elusive
Over the last decade, investors have dealt with extraordinarily low rates followed by higher rates but heightened volatility in bonds. In contrast, infrastructure has provided solid, consistent income over the same period (as highlighted in gray), as well as capital appreciation (blue) outside of significant economic downturns. In addition, it has exhibited low or negative correlation to public markets and less volatility relative to the U.S. bond market.
Exhibit 2: Global core infrastructure returns
Rolling 4-quarter returns from income and capital appreciation
Exhibit 2 source: MSCI, J.P. Morgan Asset Management. Infrastructure returns represented by the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year returns from income and capital appreciation. The chart shows the full index history, beginning in 1Q09 and ending in 3Q23. Data are based on availability as of November 30, 2024. Guide to Alternatives, page 41.
Inflation hedging is still a priority in portfolios
After a dramatic surge, inflation has made substantial progress toward the Fed’s 2% goal. However, some investors still worry aspects of inflation could be sticky, and in the long run, inflation is likely to settle slightly above the Fed’s 2% target. Relative to other asset classes, utilities have demonstrated strong inflation protection attributes historically.
Exhibit 3: U.S. utilities allowed returns versus inflation
Average allowed return on equity*, annual
Exhibit 3 source: AEU, Bloomberg, Bureau of Economic Analysis, SNL, J.P. Morgan Asset Management. Data represent average allowed return on equities (RoEs) for electricity and natural gas utilities, from 1970 through December 2023, and annual inflation from 1968 through 2021. *Return on equity is lagged by 2 years. Data are based on availability as of November 30, 2024. Guide to Alternatives, page 44.