Investing in Infrastructure
Tags: Civil Engineering, Infrastructure

As the economy rides out the new reality of the Coronavirus, spending on infrastructure could be an answer to the United States’ economic woes, according to a nearly $1 trillion government proposal currently in the works.

The U.S. infrastructure funding law is up for renewal on September 30 th . In its absence, investors are expecting something big to happen. The news of the non-finalized proposal already sent stocks soaring. Last week, upon the announcement, Fluor Corp. surged 11% before regular U.S. trading began, while Vulcan Materials Co., another heavy infrastructure company, similarly climbed by 8.3%.

Regardless of the fate of this specific proposal, infrastructure as an agenda item isn’t going anywhere. According to a statement from White House spokesman Judd Deere, “Since he took office, President Trump has been serious about a bipartisan infrastructure package that rebuilds our crumbling roads and bridges, invests in future industries, and promotes permitting efficiency.”

In fact, infrastructure has been on the minds of lawmakers for some time now. In January, the Democratic-led house laid out a $760 billion, five-year infrastructure package. That follows another package set forth by President Trump two years prior that totaled $1.5 trillion. While neither of these proposals were the final fix, they underscore the need for improved infrastructure throughout the United States, and tangentially, a new era of government investment in the U.S.

It’s a sure bet that with the pending renewal date, the next generation of government-led investment is imminent in one form or another. Here’s what all investors need to know.

What is Infrastructure?

Traditional infrastructure includes roads and bridges, yes. And in the U.S., ours need a lot of work. According to the American Society of Civil Engineers (ASCE), the U.S. needs to spend some $4.5 trillion by 2025 to fix the country’s roads, bridges, dams, and other infrastructure items that Americans rely on every day.

Per the same report, the 2017 Infrastructure Report Card (which is published by the ASCE every four years) many of the one million pipes that carry American drinking water have been in use for almost 100 years. Aging pipes are a serious issue when you consider that there are an estimated 240,000 water main breaks per year, not to mention issues with contamination.

And, more than 200,000 of the 614,387 bridges in the U.S. are more than 50 years old. It is estimated that these will cost as much as $123 billion to fix.

This physical infrastructure needs to be fixed.

But, amid today’s technological renaissance, our society is largely reliant on wireless technologies and networks more than ever, and that counts as infrastructure too. Accordingly, there is also a need to innovate and improve in the wireless and 5G network arenas, as well as implement better broadband access for rural areas of the country.

In other words, infrastructure today refers to both Route 66, as well as the “information superhighway.”

Why Invest in Infrastructure?

Roads and bridges are in many ways at the core of economic growth. According to the ASCE, “infrastructure brings you breakfast.” Its website follows a bagel from wheat fields in the Midwest to a bakery in the South, demonstrating how the price of the bagel is impacted by its journey along America’s infrastructure.

Traditional infrastructure provides essential services to society and benefits. They are “essential to the sustainability and growth of an economy,” according to the Royal Bank of Canada’s Global Asset Management.

Even more, because there is often little competition in regulated industries or after a government contract is established, traditional infrastructure investments tend to have sustainable cash flows and resistance to economic swings.

If the market for roads, bridges, and pipes seems pretty straightforward, consider what the new high-tech infrastructure of 5G could mean.

Given that the transition from 3G to 4G wireless communication helped usher in the era of online banking, Uber, and Snapchat, the nationwide transition from 4G to 5G could mean big changes and opportunities. 5G offers the most capable wireless infrastructure available that has the potential to be 100 times faster than 4G, with increased connection capacity.

Market intelligence firm IDC forecasts that worldwide 5G connections will reach 1.01 billion in 2023. That’s up from approximately 10.0 million from 2019. That’s good news considering that 5G is anticipated to be a driver of technological growth for years to come, supporting the “future digitization and automation of systems, connecting smart sensors with AI.”

In a world where the internet is more capable and reliable than ever before, does the wireless transmission of energy seem like a thing of science fiction?

It’s not. In fact, it’s already possible through UV rays, microwaves, electromagnetic fields, inductive coupling, and via Wi-Fi. And, even our electric toothbrushes. If applied on a large scale to the world outside of our bathrooms, the wireless transfer of energy could be transformative. It could give people without a reliable source of power, in rural areas for example, wireless access to a sustainable power supply.

The companies that make the component parts of this technology, like the makers of semiconductors that make chips for smartphones, are sure to soar with increased demand. Consider also the makers of wireless sensors, which support new gaming capabilities of 5G, and the manufacturers of fiber optic technologies that support new 5G networks.

It’s not just the makers of the hardware that will benefit. Mobile apps that require large amounts of data transfer, from Netflix to Spotify, are anticipated to see a boost from increased online capacity. Standard 5G systems are also expected to boost the speed and efficiency of cloud computing services.

The future of infrastructure is twofold — on both an improved roadway, and improved information highway. The need for investment is not a surprise to lawmakers or to the average American — but the reality of investment, especially considering the looming September 30 deadline, is imminent.

How to invest in infrastructure

Given the broad reach of infrastructure as an asset class, it can be challenging for investors to fully diversify their holdings. However, infrastructure-focused ETFs and mutual funds are a good way to access this sector without investing directly in individual companies. A search on Magnifi suggests there are a few different ways to do this.

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