INFRASTRUCTURE STRATEGIES CAN PROVIDE PROTECTION IN VOLATILE MARKETS
Although infrastructure funds include investments related to the oil and gas industries, their returns typically aren’t directly connected to the prices of those commodities. For example, oil and gas pipelines are paid based on the volume of product moving through their networks — regardless of commodity prices. Utilities that face higher prices for the fuels they use to generate electricity generally are allowed to pass those costs on to their rate payers, keeping their cash flow more predictable in volatile energy markets.
So while high energy prices are unlikely to produce excess returns for infrastructure strategies, they’re also unlikely to suffer as much as other equity investments during market downturns sparked by surging oil prices. That’s why infrastructure funds often serve as defensive strategies, particularly as a way of offsetting volatility elsewhere in a portfolio.