What if the biggest risk in infrastructure investing today is treating it as a single asset class?

Historically, global infrastructure has been perceived as an asset class offering relatively stable and predictable returns which may vary depending on market conditions. Yet, as the asset class evolves in response to structural shifts such as decarbonisation, digitalisation, and changing supply chains, broad categorisations are becoming less useful.

The infrastructure label alone no longer tells investors enough about revenue quality, risk transfer, policy exposure or long-term resilience. The key question is not simply whether an asset sits within an infrastructure sector, but whether it has the economic characteristics investors expect from infrastructure in the first place.

A more nuanced investment universe

Infrastructure today is not a monolith. It spans a diverse range of subsectors, each with distinct drivers, regulatory frameworks, and risk-return profiles. Traditional assets such as utilities and transport continue to play a core role, but they are increasingly complemented by newer areas like digital networks, district heat, equipment leasing and other energy transition solutions.

Investors need to distinguish between assets with genuinely defensive infrastructure characteristics and those that may simply be exposed to attractive themes.

In this context, we believe a selective approach is becoming essential. Investors need to distinguish between assets with genuinely defensive infrastructure characteristics and those that may simply be exposed to attractive themes.

This enables a clearer understanding of where risks lie - and where opportunities may be underappreciated.

Decarbonisation

Opportunity with complexity

One of the most powerful forces reshaping infrastructure is the global energy transition. Governments and corporates are accelerating efforts to decarbonise, driving significant capital investment into renewables, grid modernisation, energy efficiency and the wider infrastructure needed to make lower-carbon systems reliable and affordable.

A selective perspective helps investors distinguish between different risk profiles, allowing for more targeted allocation.

However, this opportunity set is far from uniform. In our view, the dispersion in renewable returns is being underestimated depending on geography, regulatory support, and technological maturity. Some assets benefit from long-term contracted revenues, while others are more exposed to merchant pricing, grid constraints and policy evolution.

A selective perspective helps investors distinguish between these different risk profiles, allowing for more targeted allocation. It also helps avoid the assumption that every asset associated with the transition automatically offers infrastructure-like downside protection.

Digital infrastructure comes of age

At the same time, the digital economy is transforming what constitutes infrastructure. The rapid growth in data consumption has fuelled demand for fibre networks, towers, and data centres. Some of these assets exhibit infrastructure-like characteristics, including high barriers to entry, essential demand and long-term contracts. For investors, the distinction between durable digital infrastructure and technology-led growth exposure is increasingly important.

Yet these assets are not without their own complexities. Technological change, evolving customer requirements, and competitive dynamics can all influence long-term value. Understanding these factors at a detailed level is critical to identifying assets that combine structural growth with durable cash flows.

Rethinking transport and logistics

Transport infrastructure, long a cornerstone of the asset class, is also evolving. While passenger volumes have recovered unevenly in the wake of the pandemic, longer-term trends such as remote working and decarbonisation are reshaping demand patterns.

Meanwhile, freight and logistics infrastructure has gained prominence, supporting changing supply chains and demand for more resilient networks. Here again, selectivity matters. Assets supported by contracted, availability-based or take-or-pay revenues can have a very different risk profile from those exposed mainly to volumes or discretionary demand.

Regulation and inflation

Detail matters

Regulation remains a defining feature of infrastructure investing, but its influence is becoming more complex. Policymakers must balance attracting private capital with achieving social and environmental objectives, creating both opportunities and risks.
 

A detailed, bottom-up approach is essential to assess (revenue linkage, contract structures, and regulatory mechanisms) accurately.

Inflation adds another layer of nuance. While infrastructure is often viewed as a potential hedge against rising prices, the degree of protection varies. Some assets benefit from explicit indexation, while others rely on pricing power, regulatory resets or contract renegotiation. Revenue linkage, contract structures, cost pass-through and regulatory mechanisms all play a role in determining how effectively inflation protection works in practice. A detailed, bottom-up approach is essential to assess these dynamics accurately.

The case for active, selective investing

In an increasingly diverse and complex asset class, active management is gaining importance. Broad or passive approaches may overlook the dispersion of returns across subsectors and geographies.

By contrast, a selective strategy grounded in detailed analysis can better identify mispriced opportunities, anticipate regulatory shifts, and allocate capital to areas with the strongest long-term fundamentals. For us, this means focusing on assets where essential-service demand, defensible revenues and active ownership can combine to create value, rather than relying on thematic growth alone. This also enhances diversification, ensuring that portfolios are constructed from assets with genuinely complementary characteristics, rather than simply broad exposure.

Final thoughts

The case for global infrastructure remains compelling, underpinned by a significant investment gap across energy, digital connectivity, and urban development. However, capturing these opportunities requires a more sophisticated approach than broad asset-class exposure can provide. As the market evolves, success will depend on moving beyond high-level classifications and focusing on the assets that genuinely combine essentiality, resilience and growth, embracing a more selective perspective. For investors, this shift is not only about managing risk. It is about accessing the best of what infrastructure can offer in a rapidly changing world.

Monetary Policy & Rates

The RBA held the cash rate steady this month following three consecutive 25bp increases to open the year, a unanimous decision that Governor Bullock paired with an acknowledgement the economy still carries "a bit of excess demand." We read the pause as genuine, not the end of the cycle. Our central case is that the Bank remains on hold through the second half of the year before delivering a further 25bp increase in the December quarter - a move we expect to be driven by cost-push inflation crystallising even as the broader economy looks lacklustre.

Underlying inflation is building beneath a softer headline

The case for a final hike is building beneath a softening headline. May headline inflation fell to 4.0% YoY, but almost entirely on a 12% fall in fuel and a 6.9% drop in travel prices; the trimmed mean rose to 3.6% YoY, the high of its series. The persistence sits in roughly a third of the basket and is supply- and cost-side in character: new dwelling construction is running at 5.6% YoY - its fastest since mid-2023 and adding some 42bps to headline inflation on its own - while rents are reaccelerating toward 4% and market services inflation remains broad-based. Critically, this is all evident before the Fair Work Commission's 4.75% award wage increase - which lifts pay for around a fifth of the workforce - takes effect on 1 July (the concurrent ~6% rise in the National Minimum Wage reaches under 1% of employees and is macroeconomically immaterial). We expect that award step-up to feed market services through the second half, with the late-October Q3 CPI the most likely trigger for the Bank to move.

A hike into a cooling economy

That this tightening would land into a cooling economy is, in our view, the defining feature of the outlook rather than a contradiction of it. The housing downturn has begun, hours worked softened in the month, and household spending is growing at its slowest pace in a year. Yet the labour market remains genuinely tight: unemployment fell back to 4.4% as April's spike reversed, employment rebounded 40k, and broader spare-capacity measures - underutilisation at 10.2%, underemployment near its cycle low - sit at generational tights. A central bank facing sticky, cost-driven inflation against a still-tight labour market has limited room to look through it, weak demand notwithstanding.

The 2027 risk: a wage-price spiral

Beyond the December move, we see a credible path to a second 25bp increase during 2027, though we treat it as conditional and sequenced. The first condition is that money supply growth remains strong, sustaining the monetary impulse behind demand; only if that holds does the second condition - a broadening in wages growth - become the mechanism that converts cost-push pressure into a self-reinforcing wage-price dynamic. Absent strong money supply growth, we would not expect wages alone to force the Bank's hand. We flag this as a risk case rather than our base but note it runs directly counter to prevailing assumptions of an easing cycle from late 2027. On our trajectory the next move is up, then held, and the eventual cut sits materially later than consensus.

Positioning

With the market pricing only around 8bps of tightening over the next twelve months, we regard the front end as under-pricing both the December hike and the medium-term risk profile. This is a higher-for-longer environment, and we continue to favour carry and income over duration, with elevated BBSW reflecting a rate path that has further to climb before it turns.

A takeover of the US equities market by foreign investors and passive vehicles; leading into the equal-weighted index lagging. Demand for power surging as free cash flow generation at the "Mega Tech" collective goes the other way; fund managers' most crowded trade amid all that is semi-conductors; and AI attracts new founders like moths to the flame. The value of US equities and housing is at record levels relative to GDP; but investor sentiment remains positive; and the number of investors expecting multiple expansion is evenly balanced with those predicting contraction. Elsewhere, we see evidence of softness in the Australian employment market and the widened gap between the top decile and bottom decile of US consumers.

Ownership share of US corporate equities

Source: FT.com, Goldman Sachs

Ratio of the equal-weighted S&P 500 to the S&P 500 index is down to 1.1, near the lowest since 2003

Source: The Kobeissi Letter, TheDailyShot

Worldwide data centre power consumption projections (TWh): 2025 - 2027

Source: Equitable Investors, Gartner

"Mega Tech" free cash flow diminished - "capital light" model gone

Source: BCA Research

Most crowded trade

Source: Bank of America Fund Manager Survey

AI-driven surge in number of startup founders

Source: Apollo

Value of US equities and housing stock relative to GDP

Source: re:venture

ASR Asset Allocation Survey - composite optimism indicator

Source: Bloomberg, Absolute Strategy Research

Survey on probability that global equity multiples will be higher a year from now

Source: Bloomberg, Absolute Strategy Research

Seek Employment Index - May 2026

Source: Seek

US consumer spending by income percentile

Source: FT.com, Moody's