Invest in Infrastructure

The idea: For a really good inflation-adjusted return — and a real return under different economic conditions — a good asset class to start with is infrastructure. Infrastructure investing in essential areas like water, power, transportation and communications was long the preserve of institutional investors in the US and Canada, particularly pension funds with long-term liabilities and a need to protect against inflation. But these assets are great. Established companies enjoy a barrier to entry, there’s diversification across geographies and sectors, and revenues tend to go up at least in line with inflation. And then, separately, I’d also put money in precious metals, and gold in particular.

The strategy: There are private infrastructure funds that are relatively illiquid, but the benefit is that you should, in theory, get a better return over the long run for sacrificing liquidity. In practice that has worked out quite well. Between 2008 and 2024 private infrastructure funds had a 9.3% annualized average return, way better than stocks and bonds and real estate globally. But investors don’t even have to go into private funds, where costs will be higher. There are stock exchange-listed funds and ETFs that buy infrastructure stocks and basically do the same thing. Over the last 10 years, these have done equally well — over 9% annually if you look at the S&P Global Infrastructure Index — and you have liquidity.

I would also always say to put money in gold. People say that gold is expensive, and yes, it doesn’t have a yield. But since 2000, gold in US dollars has vastly outperformed the S&P 500, even including dividends. It is a crisis hedge and a weaker dollar hedge. Gold is particularly attractive for US dollar-based investors, since there is plenty of scope for the dollar to weaken further, and gold in the short- and medium-term works very well when there’s dollar weakness. We generally say a well-diversified portfolio should have at least 5% in gold, and for some investors as much as 10%.

The big picture: The beauty of infrastructure is that these things are all rather essential and show fairly steady growth. Even in a recession, you’re not going to start not using water; you’re not going to use a lot less electricity; you aren’t going to stop your mobile phone subscription. It’s an investment area that is not faddish, and it’s a bit boring, but as economist Paul Samuelson said, investing should be boring and if you want excitement, go to the casino.

Real Estate Rebound

The idea: Now feels like the right time for real estate. Valuations have reset from 2022 peaks, creating attractive entry points, and we’re seeing stronger investor demand as fundamentals and liquidity improve. Total returns have been positive for three consecutive quarters — a trend that’s historically marked the beginning of longer-term upcycles.

The strategy: We suggest allocating one-third of the investment to global private real estate and overweighting the following areas relative to the MSCI Global Quarterly Property Index:

• US medical offices: Tailwinds include ongoing strong demand from the aging US population and a long-term shift from hospitals to outpatient care facilities. Supply remains in check, with construction starts at 40% of peak levels while occupancy rates are about 93%.
• European student housing: Rent growth in this segment has been positive for six years in a row, with markets on the continent and the UK seeing 2024 increases of 5% and 11%, respectively. Average occupancy was around 97%.
• Global necessity retail and sustainable (“green”) real estate: Among stores selling necessary items, vacancy rates are well below long-term averages and available supply is tight. Retail centers anchored by grocery stores look particularly compelling. In sustainable real estate, the global trend of decarbonization continues. Data centers are prime candidates for carrying, or striving for, a green designation given how much energy they consume.

The remaining two-thirds would be in publicly listed REITs, whose performance has improved in recent quarters. They’re still trading at a discount to net asset value, offering favorable entry points. Our recommended REIT exposures include:

• US senior housing: The number of Americans aged 80 and older continues to rise, while the number of senior housing construction starts has fallen dramatically.
• Japanese hotels: Japan saw 47% year-over-year growth in foreign visitors in 2024, and tourism remains a top priority for the government. This, combined with a weak yen and narrowing supply, makes the case for hotel REITs.
• Global data centers: Spurred by the artificial intelligence boom, the rise of data centers has caused demand for electricity to surge. We expect data centers to expand beyond primary power markets into less constrained ones.

The big picture: Real estate’s ability to generate steady income makes it an effective inflation hedge. Although a potential economic downturn would threaten real estate’s nascent recovery, the asset class has already mitigated two of three primary risks: falling values and oversupply. The third risk, loss of demand, can be managed by focusing on property types and markets with resilient demand drivers (e.g., megatrends, structural imbalances).

Pick Quality Health Care

The idea: I’m interested in high-quality health-care stocks, and in particular medical device-maker Medtronic. Health care is a highly regulated industry that is on sale in this period of policy transition, when we’ve seen lots of headlines and ideas that could be negative for some elements of the industry. I look for investment candidates that are “double-whammys” — companies that will perform well fundamentally, but where you potentially also could see some multiple expansion. Our hurdle rate is to find ideas that can exceed a 20% upside in a year, and Medtronic hits that mark, according to our analysis.

The strategy: You don’t have to be a value investor if you are a quality investor, because you’re trying to latch on to something that has durable growth and you can let the compounding returns carry you through. We want established companies with good market positions, good opportunities for organic growth and that traditionally perform well on metrics like return on invested capital, free cash flow, and from a capital allocation perspective. Medtronic is a leader in most of its markets, has a clean balance sheet, about a 3.3% dividend yield that gives a little bit of a margin of safety, and it is trading at about 1.5 multiple turns lower than its historical average.

We like many of the moves the management team has made to strengthen the company’s franchises and focus. Medtronic is at the cusp of some exciting new product cycles that will materialize regardless of regulation. They have new cardiac devices getting strong reviews from surgeons, an implantable device to treat hypertension and, for 2026-2027, a robotic-assisted surgery product that has been selling internationally but just was submitted for FDA approval in the US for urological surgeries, and we expect Medtronic to apply for more uses over time.

The big picture: The stability of the health-care sector is not being celebrated in valuations. The price-to-sales ratio for the Health Care Select Sector Total Return Index (IXVTR) is about 1.4 and the 10-year median is 1.7 — that’s the lowest multiple since 2013. We have a strong secular backdrop given the health-care needs of baby boomers. We’ll see changes in policy, but some things are difficult to change dramatically. We’ve seen that with some tariff situations. We don’t know how tariffs will settle, but the initial fears got quickly peeled back, if you will, and there’s potentially an analogy with health care and the demographic trends and how much can really be changed.

Stay Nimble

The idea: Because there has been so much volatility in markets, allocating to global active dynamic managers is particularly attractive. These are investment managers who aren’t just focused on the US or Europe or Asia and have the flexibility to move where they see opportunities. They can find the best companies globally with strong competitive moats that trade at attractive valuations. Outside of equities, infrastructure is an area where we continue to think we can get equity-like returns at less than equity-like risk.

The strategy: In dynamic funds, which may also be called “go anywhere” funds, you are trying to break free of benchmarks. In a way, benchmarks can be a constraint, with managers wanting to be underweight or overweight. But dynamic managers are just looking for the best opportunities around the world. We like managers with a quality bias. This is not an environment to go out and find some beaten up-value stock. And this style of fund allows a manager to flex and change to where the opportunities are, which may not be where they were a month ago.

With infrastructure, we all know about the ecosystem of digital infrastructure being built out, but also there’s no Generative AI without energy infrastructure. To build productive capacity you need roads, transport, bridges, all sorts of things America desperately needs to build, and Trump is loosening the permitting around that. But more broadly every country in the world wants Gen AI. Many countries have antiquated systems, or expensive electricity, like you see in Europe, and prices are more attractive. With infrastructure, you wind up having first-class counterparties, oftentimes revenues are indexed to inflation, and it’s less correlated to equity markets. You can get 10% to 12%-type returns.

The big picture: You have to remain incredibly well diversified in times of turbulence and volatility like we are experiencing now. Our view is that this will be okay. Just make sure you’re diversified with great companies in great sectors and in areas leveraged to big secular themes. Then you can worry less about the volatility.