In this inflationary environment, we believe the infrastructure sector should continue to be much more insulated than other segments of the equity markets.
If economic stagflation continues this year, we think the backdrop for defensive businesses, particularly those exposed to themes such as the aging demographic and the energy transition, is as constructive as it has ever been.
In 2023, the oldest baby boomer is set to turn 77 years old, entering a phase during which alternative housing, which can be more conducive to the lifestyle of an older adult, often becomes desirable.
As this key demographic continues to age and the world recovers from the Covid-19 pandemic, our society may need more social infrastructure to support its increasing demands. Aged-care facilities, senior housing options and greater hospital capacity should invariably be necessary, and investors could benefit from this expected growth. We expect the healthcare REIT segment to remain an area for opportunity in 2023.
As for the global push toward a lower-carbon future – as initiatives and regulations continue to support net-zero objectives, regulated utilities may need to convert their generation fleets to more sustainable sources. This process could drive regulated utilities to grow more rapidly than ever. Faster-rate base growth should lead to faster earnings growth and, likewise, faster dividend growth.
With the continuation of energy supply restraints and the continuing war between Russia and Ukraine, the notion of committing capital to renewable-energy solutions has become increasingly desirable. Nowhere is the energy cost-of-living crisis greater, and the political motivation to hasten renewable-energy growth stronger, than in Europe. This is where we continue to see the greatest opportunity for value creation in 2023.
Jim Lydotes, Global Income Manager, Newton Investment Management
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