11 Nov 2021

Update on VAM Global Infrastructure Fund

There has been much talk and focus on the VAM Global Infrastructure Fund in previous months as we’ve positioned the many reasons than infrastructure investing will be fundamental in any well-diversified portfolio, including the potential for lower correlation of returns relative to broader equity markets, and the strength and visibility of contracts held by some of the underlying counters. The recent passing of US President Joe Biden’s infrastructure bill reinforces the importance of infrastructure as a sector and we believe that we are well positioned to see the effects of how this bill will play out in our Fund over the medium term.

  • Congress passed a $1.2 trillion infrastructure package on Friday, approving a signature part of President Joe Biden’s economic agenda. This represents the largest public infrastructure upgrade since Dwight Eisenhower’s presidency in the early cold war.
  • Roughly half the headline amount is expected as part of regularly scheduled maintenance, meaning that about $550bn constitutes new spending. The package will deliver $550 billion of new federal investments in America’s infrastructure over the next five years, touching everything from bridges and roads to the nation’s broadband, water and energy systems.
  • From 2022 to 2026 federal infrastructure spending will rise from about 0.80% of annual GDP to 1.30%, well above the trend of the past four decades. This is nearly the same average level as during the New Deal, the spending programme that helped lift America’s fortunes after the Great Depression and positioned the United States as an economic powerhouse for the subsequent decades.
  • The bill will deliver the largest investment in renewable energy in US history and provide material benefit for middle class families and, in particular, women, by funding universal early childhood learning and extending the child tax credit. This ought to lift America’s female labour force participation rate by reducing the cost of childcare.
  • The bill will deliver the largest investment in renewable energy in US history and provide material benefit for middle class families and, in particular, women, by funding universal early childhood learning and extending the child tax credit. This ought to lift America’s female labour force participation rate by reducing the cost of childcare.
  • As a rule of thumb, an additional $100bn per year spent may immediately boost growth by a tenth of a percentage point, and potentially more if it catalyses additional private sector investment. In the longer term, the Manager expects it to support productivity and raise US growth by as much as a fifth of a percentage point.
  • The bill constitutes half of President Biden’s “Build Back Better” agenda. The other half is a $1.75trn bill dedicated to social and climate priorities such as universal preschool and clean energy subsidies which has been delayed by intraparty arguments.
  • This bill could boost the sales and earnings for a variety of FCM holdings. Increased investments in 5G wireless broadband networks will be critical in order to help bridge the digital divide in the US. $65bn has been allotted for high-speed internet helping link up rural communities with reliable internet access. This should benefit cell tower owners such as Radius and other digital infrastructure investments in the VAM Global Infrastructure Fund such as Equinix.
  • $73bn has been earmarked for clean energy meaning new power lines, rebuilding old electrical grids and expanding clean energy. The investment in green energy will mean that companies such as Clearway, Brookfield Renewable Partners and Hannon Armstrong are also likely to benefit from government incentives and increased opportunity sets.
  • Clearway Energy, an underlying holding of the Fund, celebrated the bill passing as a big win for American communities. This is because the bill will invest in modernising the power grid, improving reliability and more efficient delivery of clean power. The Manager will aim to share a case study for how Clearway is likely to be impacted by the ensuing policies in the coming months.

Source: Foresight Capital Management

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