Global Infrastructure and Natural Resources

by:
Chief Investment Officer and Managing Director | IndexIQ

According to the Organization for Economic Co-operation and Development (OECD), global infrastructure spending requirements over the next few decades will be in the trillions of dollars, as governments invest to build and upgrade facilities for transportation, energy, telecommunications, and water, among other needs.1 While developed countries, like the U.S., are engaged in an active debate on the topic, much of this spending will take place in Emerging Markets.

Whoever is doing the figuring, the numbers are huge. By one estimate, as much as $97 trillion in infrastructure investment will be needed to support global growth by 2030, or about $3.7 trillion a year. This report, published by the G20, estimates that the U.S. will have the biggest funding gap at $3.8 trillion, while China will have the greatest demand at $28 trillion.2 At the same time, the global population is expected to grow by about 25%, or two billion people.

Of course, what should be invested and what is invested are often two different things, with the flow of funds to projects around the world ultimately dependent on both politics and overall economic growth. Still, the trends are powerful and clearly create opportunities for investors, as billions of dollars in private and public capital flow into everything from windmills to airports to highway construction. By one estimate, there are more than 12,000 large-scale public and private infrastructure projects currently underway around the world.3 Given all of this, the natural resources sector is one area that is likely to benefit, as companies and countries look to make more efficient use of energy, water, and other commodities fundamental to growth.

Technology, too, is playing a major role in supporting sustainability in areas that include agriculture and forestry, while concerns about climate change are driving investment in renewable energy. Scale is helping to bring the cost of wind and solar power down, even as drones help farmers make more efficient use of their land.

As an investment theme, global infrastructure is likely to play out not just over years, but decades, and will touch on many industries, some obvious, while others may be less so. It will cycle in and out of favor, as the pace of worldwide growth ebbs and flows.

Not every bridge or airport will be built. But, the need is there, and the dollar value of the projects is massive. Investors with a long-term perspective should take a look at the opportunities.

1. The Organization for Economic Co-operation and Development (OECD), 6/06.

2. Business Wire,  5/16/17.

3. The PE Hub Network, 7/25/17.

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Salvatore J. Bruno

Chief Investment Officer and Managing Director | IndexIQ

Sal is Chief Investment Officer at IndexIQ, where his primary responsibility includes developing and maintaining the firm’s investment strategies. Sal joined IndexIQ in 2007 from Deutsche Asset Management (DeAM) where he held a number of senior positions

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