Investment Opportunities in Aging U.S. Infrastructure

By Bernard Chua, CFA - November 15, 2017

U.S. infrastructure is getting older. Both private and public fixed assets are, on average, more than 20 years old and in desperate need of replacement. According to the Bureau of Economic Analysis (BEA), the average age of private fixed assets like machinery and buildings was 23 years old. This is in part due to companies that delayed spending on plants and equipment after the last financial crisis started in 2008.

Public assets like pipelines and transit systems are no better off. As of 2016, the average age of government fixed assets was 24 years. Roads, highways and bridges are even older, with approximately 17 percent of U.S. bridges deemed structurally obsolete.

The Environment is Ripe for Investing in the U.S.

Average Age of Fixed Assets in Years

Construction Ahead

We believe the environment is ripe for U.S. infrastructure improvements. Private business confidence is currently high, and CEOs are more willing to spend on capital equipment. In addition, corporate profitability and rising cash flows will allow companies to reinvest in capital equipment.

Big improvement projects will require investments in materials, people and equipment. That spending is likely to benefit the underlying growth rate the overall economy, and certain types of companies specifically.

We believe companies that specialize in construction materials, supplies aggregates (sand, gravel, crushed stone, etc.), raw and finished goods, and construction rental equipment will see the most benefit. Using our fundamental, bottom-up analysis, we look for companies that are positioned to benefit from the growth of U.S. and European construction activity.

Political Roadblocks?

Many investors are overly focused on the $1 trillion infrastructure program promised by President Trump—numbers we believe will be difficult to achieve. Regardless if that spending proposal materializes, we still believe infrastructure spending is poised to grow because funds have already been allocated.

Fixing America's Surface Transportation (FAST) Act

Allocation by Program (2016-2020 in $B)

Source: U.S. Department of Transportation, Federal Highway Administration

In 2015, President Obama approved the Fixing America's Transportation (FAST) Act, which provides five years of funding to fix the country's roads. In November 2016, voters in 22 states also approved $200 billion in new or renewed transportation funding. Failing infrastructure requires immediate action, so we believe the trend to approve projects at the state level will likely continue.

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Bernard Chua, CFA
Bernard Chua, CFA
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      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.