Weekly Basis Points - Two Reasons to Stay Long Infrastructure from Here

We’ll acknowledge that ​“infrastructure” doesn’t typically generate the same type of excitement that other areas might. For instance, ​“crypto” sounds mysterious and fun while ​“AI” has the type of buzz you’d associate with something cool and trendy. Going long infrastructure sounds the same as recommending ​“plastics” to someone in the 1960s - it’s boring and safe.

But branding issues aside, ​‘boring and safe’ can often be a good thing in the world of investing. 

We’ve been bullish infrastructure for almost a year now. And as part of our own internal review process, we decided to revisit our rationale in this note. Out of the multitude of reasons that we could have picked, there are two compelling ones for why we still feel that investing in infrastructure will remain a compelling play in the years to come. 

First, there are strong macroeconomic tailwinds in favour of it. Several emerging markets are experiencing massive demographic shifts and increased urbanization. In the developed world, there is the need to urgent need to update aging infrastructure. In the past year, the marked departure away from internationalism and free trade has provided several countries with an opportunity to look at different ways to boost domestic incomes. The optimal way to do this is to spend on improvements to transport systems (roads/​highways/​bridges/​rail, etc), energy grids, and digital connectivity. Additionally, countries are looking more closely at existing natural resource wealth to diversify trade relationships (think of the renewed federal interest in building pipelines here in Canada).

In 2025 alone, several countries announced major infrastructure initiatives. For example, in the recent Canadian budget, PM Carney announced that his administration would spend C$115bln over the next five years on such projects. In March, the German government circumvented it’s long enshrined ​‘debt brake’ to create a fund that will spend EUR550bln over the next ten years on major transport, climate and digitalization projects. In Japan, it’s estimated that around 30% of the JPY21.5trln fiscal stimulus package will go towards public infrastructure projects.

The appeal of these projects is that also lead to immediate job creation – alongside the longer-term benefits through gains in productivity. That is particularly true for sectors that have been more acutely exposed to the current trade conflict, including manufacturing and construction jobs.

The second reason to be bullish infrastructure is the global push towards increased electrification. Already, we’re seeing signs that current digital infrastructure is inadequate to keep pace with the surge in power demand. Whether it’s the push towards sourcing clean energy or the need for more data centers as part of the AI race, electricity grids are close to their peak loads in a lot of places while storage technology has lagged. That has created bottlenecks which, in turn, has meant an increase in electricity costs for the general public.

Right now, we can map out expected infrastructure investments related to electrification over the coming decades. In the sectors most relevant to this push (energy and telecoms), we estimate that close to $22trln will be allocated over the next 15 years (Chart 1).

Chart 1 – Forecasted Global Spending on Energy + Telecommunication Infrastructure Over the Next 15 Years (US$, blns)

For many governments, the public-private partnership (or P3) model is the best way to build out infrastructure and spread the risk of big projects – and it’s likely that most of the projects end up taking that approach. Indeed, it’s in the private sector where the financing, technology and operational experience primarily exists. This is also the channel where investors can gain exposure to the type of revenues that infrastructure projects provide – namely, those that stable, dependent on inelastic demand, and long in duration.

And remember, that funding is still mostly lacking in this space. According to some estimates, the need for global infrastructure investment is estimated to be around US$41-42trln over the next ten years. Current investment trends are still only around $35-36trln (see Chart 2).

Chart 2 – The Global Gap in Infrastructure Funding Remains Wide (From 2025- 2040)

Indeed, the need for a variety of infrastructure projects remains large and firms that already generate fees from long-lived assets that are integral to the space (think pipelines, transmission lines, airports, etc) will be best placed going forward. By extension, funds that either directly hold these long-lived assets, or invest in firms that do should also benefit.

In our next update of our ​‘Quarterly Portfolio Strategy’, we’ll likely be increasing our allocation to infrastructure within the alternative sleeve of our portfolio. This will likely be via the BGIF (the BMO Global Infrastructure Fund ETF). 

Portfolio Strategy

For the Tactical Portfolio – we’re not making any changes this week. 

Book of Trades

There are four points to flag this week:

a.) In Canada, it’s bank earnings week. For the major banks, we have Scotia kicking things off on Tuesday, followed by RBC and National on Wednesday, and then BMO, CIBC and TD on Thursday.

Recall, that the last round of earnings for CAD banks was much stronger than expected due to a combination of factors including less PCLs and higher PTPPs. The former speaks to the resilience of the Canadian economy (despite trade uncertainty), whereas the latter is all about the diversified revenue streams that allow banks to approach ​‘all weather’ status at times. As an example, banks did very well in fee-based businesses (underwriting and M&A) as well as trading which helped to offset the lack of loan growth.

We’re constructive on CAD banks going forward. That’s not least that banks remain flush with capital (CET1s are well above regulatory minimums) and the chances of share buybacks are always there. Also, with the recent fiscal budget being heavy on spending for infrastructure, defense and home building, there are lots of opportunities for capital deployment and loan growth.

b.) Speaking of Canada, I did receive some inbounds after the release of CAD Q3 GDP last week. Here is what I’ll say:

• - At the surface, annualized quarterly growth of +2.6% is still above what the BoC had anticipated for Q3 (+0.5%) and the handoff implies that it’s forecast for Q4 (+1.0%) is still achievable.
• - However, the details of the print were lacking. The growth impulse was largely from a massive collapse in imports as final domestic demand slightly negative on the quarter. 

This is still supportive for the BoC’s view that extant policy rates are at the right level for now. So much still hinges on the status of the USMCA – and the BoC will likely take its cue from that.

c.) In the US, we’re still working through the delayed data releases. The only ​‘tier 1’ data point on the calendar this week is PCE (which is out Friday). The release of the November edition of Non-farm payrolls has been pushed back to December 16^th.

There is a weird cognitive dissonance playing out in the market right now – where most agree that the Fed shouldn’t cut rates in December, but are pricing it in anyway. The reason is that several Fed speakers have alluded to it in recent comments and it feels like no one wants to get in the way. Nevertheless, stronger data (especially when it comes to the labor sector) will amplify the tension here – which is why we’re paying close attention to ADP employment data (Wednesday) alongside claims data (Thursday).

d.) Keep an eye on the sector rotation currently underway in the US. For instance, defensive sectors like Healthcare and Staples have been performing over the past month while Tech has not. Even still, we are seeing a fair degree of inflows into Tech sector ETFs globally, and it did feel like the tide was shifting a bit last week. 

Balanced Portfolio