Bennelong Funds Management

A common dictum of listed equity investment is that infrastructure stocks under-perform as interest rates and inflation rise. This is often associated with the perception of these stocks as being a ‘bond proxy’. The logic then flows that, just like a government bond, as interest rates rise, share (bond) prices fall as the present value of their ‘fixed’ future cash flows is now worth less. Contrary to common belief, infrastructure stocks can outperform when interest rates start rising. We believe this is because key characteristics of many infrastructure stocks, especially the inflation protection in user-pay assets, facilitate earnings growth in a rising interest rate/inflationary environment. We contend that earnings from such stocks are not ‘fixed’ as is a common belief, but rather often have a positive correlation with rising interest rates and inflation. Read the full paper here: (VIEW LINK)



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