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Why Haven't U.S. Investors Embraced Infrastructure Investing?

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Is American infrastructure prepared for the 21st the century?

A recent report from researchers at the Wharton School of the University of Pennsylvania – America’s Aging Infrastructure: What to Fix, and Who Will Pay? – emphasizes that the country’s aging infrastructure needs an upgrade. Some stats to consider:

• More than half of America's natural gas transmission pipelines were installed before 1970; the same holds true for pipelines that carry hazardous liquids such as gasoline, diesel and jet fuel.

• Without policy changes, state and local governments would raise only about a third of the $200 billion needed each year to maintain and improve the nation's roads and transit systems, which is a problem since about 75% of the value of freight in the U.S. is moved by truck.

• In Germany, government mandates and subsidies have pushed 17% of electric power generation to alternative energy sources such as wind, solar and biomass, compared with just 1% to 2% in the US.

President Obama pledged $50 billion to rebuild 150,000 miles of roads, 4,000 miles of rails and 150 miles of runways but that’s only a fraction of the amount of investment needed, says Frank Holmes of US Global Investors. If America is going to give its infrastructure a comprehensive makeover, he says, a considerable amount of investment will need to come from the private sector and this hasn’t happened yet.

Why haven’t U.S. investors embraced infrastructure investing?

Holmes writes that many private investors have found better opportunities abroad as foreign governments seek to privatize state entities, involve less politics and face fewer delays. However, he says that his firm employs a two-pronged approach when playing this infrastructure investing theme.

First, Holmes says that his team has taken positions in several infrastructure operators of toll roads, airports and utilities. In general, these companies possess stable cash flows, have regulated profits and pay a dividend. Second, the strategist says that he invests in the manufacturers and equipment makers that provide the heavy equipment needed to construct and maintain the world’s streets, sewers and electrical grids.

“The time to invest in America’s future is now,” Holmes says, “before the lights go out and the bridges fall down.”
POSITION:  No positions in stocks mentioned.