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As investors look for the next great opportunity, especially during volatile economic times, a critical area is often overlooked – infrastructure.

That’s the message from Christine Tan, portfolio manager with Sun Life Global Investments in Toronto, who says that infrastructure, as a real asset investment, offers a mix of long-term growth and steady income that typically keeps pace with inflation. It’s a “hybrid” investment with traits of fixed income and equities, but with the potential to outperform both.

“In a world where there’s a lot of noise around trade and uncertainty, the one constant is companies need to spend on infrastructure,” she says.

A recent report from New York-based asset manager BlackRock Inc. shows that since 2001, the average annualized return for infrastructure equity investments was 17 per cent during years of high growth and low inflation.

That’s at least 140 basis points higher than other asset classes, including real estate, at 15.6 per cent, and global equities, at 15.9 per cent.

And in years of high inflation and low growth – stagflation, which many fear may characterize the next decade – infrastructure has fared even better. BlackRock’s study found that infrastructure had an annualized return of 23.2 per cent, which was almost triple the next best performing asset class, real estate, at around 8.1 per cent. Global equities produced an average annualized return of only 2.2 per cent in these years.

Facilities such as bridges, roads, schools, sewer, utilities, hospitals, airports and seaports, among others, are critical to enabling the Canadian economy to flourish, says Greg Oberti, deals partner at PwC Canada.

“Infrastructure, writ large, is the backbone that drives economic growth and stability,” says Mr. Oberti, who holds multiple roles within PwC Canada, including energy transition leader and national utilities sector leader for deals.

He notes Canada faces a well-publicized infrastructure deficit, estimated at the low end to be about $270-billion. That means investing in nation-building. The opportunities for growth aren’t just in Canada. Globally, infrastructure is forecasted to require US$94-trillion in investment by 2040, according to a recent report from the Global Infrastructure Hub, a G20 Initiative.

Infrastructure has lined the portfolios of Canada’s leading institutional investors for decades. Yet, retail investors are often short on exposure to this type of real asset that’s poised to see enormous growth.

There are multiple options. Direct investment is increasingly available for high-net-worth investors who can afford the higher barriers to entry, such as minimum investments that run in the tens of thousands of dollars. To appeal to a wider swath of investors, a growing number of exchange-traded funds (ETFs) and mutual funds are focused on infrastructure.

“Investing through public markets, particularly via thematic infrastructure ETFs, provides investors with diversified exposure while minimizing idiosyncratic risks,” says Shibo Gu, research analyst with Forstrong Global Asset Management Inc. in Toronto.

These investments are highly liquid, he says, and are more suited to retail investors who have shorter time horizons than institutional investors and high-net-worth investors, the latter of whose goals are family legacy needs.

Most ETFs offer global exposure, such as BMO Global Infrastructure Index ETF ZGI-T, which holds companies such as Canadian pipeline company Enbridge Inc. ENB-T and cellphone tower provider American Tower Corp. AMT-N.

The drawback of these funds is that, unlike the private market, they generally don’t invest directly in infrastructure projects, Mr. Gu says. “Private equity and real asset funds are increasingly offering more targeted infrastructure exposure.”

Still, he says Forstrong’s investment preference is using ETFs as they “provide greater liquidity, improved price transparency and a more agile response to market developments.”

The tailwinds for growth make a strong case for holding infrastructure in any portfolio.

“We believe modernization, electrification and digitization will be dominant themes across all areas of infrastructure, whether in energy, technology, such as data centres, or transportation, such as electric vehicle charging stations,” Mr. Gu says.

Infrastructure can also provide additional diversity to portfolios, something institutional money managers such as pension funds have embraced for many years.

Yet, its potentially higher growth and income profiles, compared with traditional fixed income and equities, are what make infrastructure as an investment even more compelling.

“When you allocate in a prudent manner, it’s less about diversification and more about seizing the opportunity,” Mr. Oberti says.