Infrastructure: inflation-protected investment opportunities

Infrastructure investments will be a major trend in the coming years – not least for protection against inflation.

Benjardin Gärtner


An article by Benjardin Gärtner,

Head of Equity Portfolio Management and a member of the Union Investment Committee (UIC)

  • Investment in infrastructure has been neglected for years

  • The pandemic and the war in Ukraine have accelerated a change in mindset

  • Megatrends such as the transition to clean energy, digitalisation and deglobalisation create investment opportunities 

  • Infrastructure stocks generate predictable, stable cash flows and offer a degree of protection against inflation 

  • Relatively low correlation with other investments helps to achieve a better diversification of risk

In many areas such as healthcare, communications, and energy supply, investment in infrastructure has been neglected for years. The coronavirus pandemic, and even more so the war in Ukraine, have prompted politicians to rethink. But it will be impossible to tackle the challenges ahead without the help of private capital. Infrastructure is therefore an important investment topic, especially in an environment characterised by inflation.

When German Chancellor Olaf Scholz used the word ‘Zeitenwende’ (start of a new era) in a speech to the German Bundestag, he was referring to more than just a shift in security policy. This term could equally be applied to almost any form of infrastructure. The war in Ukraine is throwing into even sharper relief what the coronavirus crisis had already revealed: energy, transport networks, digital infrastructure and healthcare systems require continuous investment. If this investment does not flow or falls short of what is required, the consequences are reflected in our everyday lives, economic growth, and social prosperity.

Without support from the private sector, it will be all but impossible to cover the enormous need for investment in sectors such as healthcare, education, water, energy and transport.

Benjardin Gärtner

Head of Equity Portfolio Management


For a study entitled “Bridging Global Infrastructure Gaps”, the McKinsey Global Institute calculated that around €2.3 trillion per year is invested in transport networks, energy, water and telecommunications. This equates to around 3.5 per cent of global gross domestic product (GDP). And yet, it is not enough to avert traffic chaos, slow internet connectivity and power outages. The study found that nearly €3 trillion per year (around 3.8 per cent of global GDP) would need to be invested in infrastructure.

Compared with other G20 member states, Germany invests the least in percentage terms according to this calculation. Between 2008 and 2013, the country invested only 2 per cent of GDP per year on average. In order make up the shortfall in infrastructure investment by 2030, Germany would need to spend an extra 0.4 per cent of GDP, i.e. around €160 billion, per year.

The pandemic and the war in Ukraine have accelerated a change in mindset

Those in charge now appear to have finally understood the urgency of the situation. The pandemic shone a light on shortfalls in the chronically underfunded healthcare sector, on sluggish progress with the digitalisation of essential services such as education, and on delays in the expansion of high-performance fibre-optic networks. Vulnerable supply chains also require substantial investment in order to become more resilient. Amid the current deglobalisation trend, this is happening in the form of relocating relevant production processes back home or to ‘friendly’ countries.

The pandemic and the war in Europe are acting as catalysts for the acceleration of existing trends. Sustainability aspects are playing a central role in this process. Establishing and expanding sustainable infrastructure is, for example, one of the focus areas of the United Nations’ sustainable development goals (UN SDGs). These goals also encompass areas such as healthcare, education, water, energy and transport. The need for capital investment is particularly high in these sectors and will be hard to cover without contributions from the private sector.

Global efforts to do more to protect the climate, as agreed under the Paris agreement and the European Green Deal, also focus on infrastructure topics such as the expansion of renewable energies. They drive transformation processes in the economy that will reduce the greenhouse gas footprint of energy usage. Decarbonisation is the name of the game.

Key megatrends support infrastructure investments

Key megatrends support infrastructure investments
Source: Union Investment, Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken; As at 3 May 2022.

Russia’s invasion of Ukraine does not change this trend. In fact, the war is actually accelerating it. Western countries are pulling out all the stops in order to achieve greater independence and stability of energy supply, find new sources of supply, further expand renewable energies and enhance the energy efficiency of their economies.

The European Union (EU), for example, has launched a RePowerEU initiative that aims to reduce dependency on Russian gas by two-thirds by the end of the year. The bloc wants to be able to wean itself off Russian gas entirely well before 2030. One of the steps the EU will need to take to achieve this is to import more liquefied natural gas (LNG), for example from the US and the Middle East. As a result, new LNG terminals will be required to take delivery of supplies and the network of pipelines will need to be expanded.

The use of alternative energy sources will also increase: For instance, the production of biomethane is likely to be ramped up and waste management companies will play a key role as suppliers in this market. In addition, a further expansion of wind and solar power will be essential for an accelerated transition to clean energy. The future holds a lot of work in store for project developers and suppliers in this sector. Investment in power grids will be required in order to facilitate the further electrification of the economy. A recent report from Spanish energy provider Iberdrola estimates that every euro invested in renewables-based capacity would need to be supported by 70 cents of investment in the electricity grid infrastructure. This will make network operators with the relevant expertise indispensable.

Why could listed infrastructure companies be an attractive choice for investors?

Why could listed infrastructure companies be an attractive choice for investors?
Source: Union Investment, Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken; As at 3 May 2022.

Investing in infrastructure stocks allows investors to participate in this very long-term-oriented growth trend. Key benefits of this asset class include predictable, stable cash flows and often also a certain degree of protection against inflation.

In the current interest-rate environment, real interest rates – i.e. interest rates adjusted for inflation – will remain negative even if the European Central Bank (ECB) raises its base rate. That creates favourable conditions for infrastructure investment. Certain types of income and fees generated in the infrastructure sector, for example by toll road operators, are pegged to inflation.

In addition, the level of correlation between these investments and other assets is relatively low, meaning that infrastructure investments are a useful tool for diversification.

Naturally, these instruments are not entirely free of risk. They are susceptible to political and geostrategic changes. A diversified equity fund can adjust to such events in a more flexible manner. In addition, a broadly diversified portfolio also makes it possible to gain exposure to a variety of sectors such as communications, energy, utilities, transport, digital infrastructure, real estate and healthcare. This means that an investment can target several different trends that are not interdependent, which should ensure a more robust performance.


Rapid changes in the wider economic and social conditions favour infrastructure stocks. The coronavirus crisis has thrown into sharp relief how outdated much of the existing infrastructure is. Now, the war in Ukraine is accelerating efforts to build and expand infrastructure, because governments of western countries in particular have started to recognise that investment is urgently required in response to social and economic shifts. Infrastructure companies are an interesting option for investors because they allow them to benefit from long-term trends while also offering a degree of protection against inflation.


As at 28 April 2022.

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