Investing in the Energy Infrastructure of the Future

By Ian Prior, U.S. Trust |  Jan 09, 2014

As the old (pipelines, electrical grids, power plans) meets the new (drilling techniques, sources of fossil fuels, renewables), it’s time for an upgrade

The “Aging of America” is no longer just about baby boomers and their extended life spans. Nowadays, you can just as easily apply the term to the nation’s sprawling energy infrastructure. That’s because parts of it are antique.

  • Some natural gas pipelines were installed before the Beatles appeared on The Ed Sullivan Show in 1964. Older pipes made of unprotected cast iron and steel, as well as newer pipes made of plastic, are prone to leaks.
  • Several coal-fired power plants still in use today were under construction just as the first baby boomer saw the light of day in 1946. Coal is cheap, but it’s a significant source of atmospheric carbon.
  • The electric grid uses fundamentals developed by Thomas Edison in the 1880s. The system lacks widespread use of “smart” technologies that can help reduce power outages and increase efficiency.

Yet even as sections at times appear close to collapse, almost the entire system is coming under even greater pressure from an increase in energy production and consumption, as well as extraneous and uncontrollable forces.

  • New drilling techniques such as hydraulic fracturing (fracking) have channeled higher volumes of natural gas and oil into the aging pipeline network.
  • The nation’s overall electricity consumption increased steadily during the last decade.
  • Last year’s massive storms in the Northeast revealed how vulnerable parts of the infrastructure are — and climatologists suspect that weather conditions may grow more extreme as global temperatures rise.

Upgrade Investment Opportunities

Clearly, our energy infrastructure is in need of an upgrade. The system is vast, and any significant improvement will almost certainly take years. We believe it should also provide plenty of investment opportunities.

As Chris Hyzy, head of investment strategy at U.S. Trust, has noted: “The strategic need to correct the inefficiencies and structural deficiencies of our energy infrastructure is massive. The capital needed simply to maintain current capacity is extraordinary, and the long-term capital-return potential is favorable. The investment opportunity in this space captures the growth aspects of long-term structural change in global demographics and is enhanced, in the short term, by the supply-demand imbalance. These are exactly the sorts of investment opportunities we search for when allocating portfolio capital across the entire asset class spectrum.”

In “Energy Independence at Last?” in Capital Acumen Issue 22, members of U.S. Trust’s Specialty Asset Management (SAM) group briefly shared their insights on where investors should — and should not — look for infrastructure-related investment opportunities to consider. In this infographic, the SAM group, along with U.S. Trust’s Investment Strategy group, expand on those ideas.


Important Information

Projections made may not come to pass due to market conditions and fluctuations.

Investing involves risk. There is always the potential of losing money when you invest in securities.

Past performance is no guarantee of future results. Asset allocation, diversification and rebalancing do not assure a profit or protect against loss in declining markets.

Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

Other Important Information

Equities

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Stocks of small and mid cap companies pose special risks, including possible illiquidity and greater price volatility, than stocks of larger, more established companies.

International Investing

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards, and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Commodities

Trading in commodities, such as gold, is speculative and can be extremely volatile. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest-rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Tangible assets can fluctuate with supply and demand, such as commodities, which are liquid investments unlike most other tangible investments.

Energy and natural resources stocks have been volatile. They may be affected by rising interest rates and inflation and can also be affected by factors such as natural events (for example, earthquakes or fires) and international politics.

Other

Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks, including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.

Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties, such as rental defaults.


OpenLocation
OpenUnited States & Canada

Select a Partnering Locally State to view topics

Viewing Partnering Locally content for All States

OpenHow we're involved