Why infrastructure is powering ahead

The post-pandemic economic environment has been characterized by higher inflation, unpredictable global share markets, and a disruption in the usual inverse relationship between bonds and equities.

While this has caused challenges for many investors, it’s been a boon for infrastructure, which has emerged as a valuable source of diversification and inflation protection amid economic and market turbulence.

Correlation of world equity markets, 2006-2025

Source: MSCI/LSEG Datastream, 14 July 2025. The line shows average correlation of the 60-day performance of the MSCI World Index with that of the indices of all individual countries within the MSCI World Index.

Both in Australia and offshore investors have been realizing the benefits of infrastructure as an asset class. Inflows to iShares US infrastructure ETFs have grown by 35% in the three years to June 2025.³ Similarly, in Australia the iShares Core FTSE Global Infrastructure ETF (GLIN) has gathered over $1.2 billion in assets from local investors since its launch in May 2023.⁴

In 2024, GLIN received more than $660 million in net flows, making the fund iShares’ third most popular Australian-domiciled ETF on an inflow basis last year. This year flow numbers are tracking similarly, with GLIN gathering around $330 million in assets year to date.⁵

During the market volatility fuelled by US trade policy uncertainty this year, infrastructure has held its own as a portfolio diversifier. The FTSE Developed Core Infrastructure 50/50 Index, tracked by GLIN, generated a 6.7% return in the six months to June 2025, compared to 0.14% for the S&P 500 Index and 1.78% for the S&P Global 100 Index.⁶

Apart from its defensive properties, infrastructure can also allow investors to tap into some of the long-term ‘mega forces’ driving growth and transformation in the global economy today.

BlackRock has identified five key ‘mega forces’ that we believe will create large shifts in profitability across economies and sectors in the years to come – demographic divergence, digital disruption, geographic fragmentation, the low-carbon transition and the future of finance.

Advantageously, infrastructure sits at the intersection of three of these major megatrends. As seen in the chart below, deal flow across the global infrastructure industry comprises a mix of transport, energy and telecommunications, giving the industry broad exposure to AI, the energy transition and global re-shoring as supply chains are rewired.

Global infrastructure deal value by sector, 2010-2025

Source: BlackRock Investment Institute/Preqin data, July 2025. Deal value measured in US$billions. Telecommunications includes data centres.

While ‘mega-cap’ tech companies have typically been the entry point for many investors into the AI mega-force, utility companies – which comprise an over 50% weighting in the FTSE Developed Core Infrastructure 50/50 Index – may be an equally compelling way to play this trend.

Companies linked to soaring power demand have begun to benefit from the AI ‘arms race’ taking place in the US in particular – S&P 500 companies in the electric utilities industry mentioned ‘AI’ in their Q1 earnings calls at more than three times the average rate of all S&P 500 constituents.⁷

This is because demand for energy is growing at a rate that indebted governments will struggle to directly finance in coming years. By 2030, global energy capital spending is projected to reach more than US$3.5 trillion⁸, forging demand for more public-private partnerships in the infrastructure space.

It’s a continuation of a trend that has evolved over the past 15 years as governments increasingly look to capital markets to raise long-term funding for infrastructure assets – and provide a beneficial structure for investors at the same time. According to Preqin data, global infrastructure assets under management have grown from US$200 billion in 2010 to US$1.5 trillion in 2025, and are expected to pass $2 trillion by 2028.⁹

While the majority of the infrastructure industry is accessible only through private markets, public listed infrastructure can offer a simpler and more liquid entry point to the infrastructure space. Valuations are also looking attractive in a relative sense, with listed infrastructure assets currently trading at around 11.9x earnings, versus 12.5x earnings for private infrastructure and 13.5x for global equities.¹⁰

While infrastructure typically fits within the growth asset ‘bucket’ of a portfolio, it can also offer defensive qualities that may help to offset the effects of inflation and volatile markets. As seen in the chart below, infrastructure has outperformed in the majority of quarters that were negative for equity markets in the last 20 years – with an average excess return of 3% relative to global equities.

Performance of global listed infrastructure vs global equities, 2006-2025

Source: BlackRock, Bloomberg as of 31 May 2025. Global equities represented by MSCI World Index. Global listed infrastructure represented by FTSE Developed Core Infrastructure 50/50 Index.

Infrastructure may also provide an element of inflation protection, as asset contracts can often include price adjustments tied to inflation measures such as the consumer price index. Since infrastructure provides essential services like energy, transportation, and water— demand for which remains steady —operators can maintain or increase prices, helping to counteract inflation’s impact for investors.

This makes infrastructure exposure desirable to have in today’s markets. While inflation is moderating from its 2022 peak, it remains more volatile than historical averages in the US in particular, where the impact of tariffs on consumer prices is still unclear (see chart below).

US inflation volatility, 1995-2025

Source: BlackRock Investment Institute/US Bureau of Labor Statistics. The chart shows the rolling standard deviation of month-on-month annualised core services CPI calculated over one-year and three-year intervals.

At the same time, we have seen a barrage of market-moving events this year in equity markets, including the fastest wipeout of US share market capitalisation in history. During this turbulent first half of 2025 our model portfolios team has maintained an overweight in global listed infrastructure, which has been the strongest contributor to the portfolios’ active returns for the year to date.¹¹

Currency is also an important consideration for investors right now, since risks to US policy and finances could weaken the US dollar further. Choosing a currency-hedged listed infrastructure exposure can help protect returns from these currency swings.

Ultimately, infrastructure’s exposure to long-term mega forces, combined with its defensive properties, mean we may see the asset class continue to power ahead in investor interest in years to come.