Why Infrastructure?
- 1. MARKET MATTERS NOVEMBER 2009 Why Infrastructure? Through an investment universe of global companies delivering essential services, infrastructure securities can offer investors equity participation in the acceleration of worldwide infrastructure spending. What Is Infrastructure? The infrastructure asset class comprises the basic building blocks required for communities to function, providing essential services such as transportation, communication, water and energy. A critical component of a society’s vitality, infrastructure directly impacts economic growth, competitiveness, productivity and overall quality of life. The chart below details the Forward Global Infrastructure Fund’s extensive and diverse investable universe of global infrastructure companies as of September 30, 2009. The Forward Global Infrastructure Fund Investable Universe Transportation Communication Energy Utilities Related Industries $427 billion $426 billion $1.5 trillion $1.5 trillion $2.5 trillion market cap market cap market cap market cap market cap 81 companies 14 companies 160 companies 128 companies 241 companies » Toll Roads » Wireless Networks » Oil & Gas Storage » Electricity » Building Materials » Airports » Cable » Fuel Transportation » Gas » Construction & Engineering » Ports » Satellite Systems » Oil & Gas Drilling » Water » Metals & Mining » Railroads » Power Generation » Agriculture Source: Forward Management, LLC. Data as of 9/30/09. Portfolio holdings are subject to change. Infrastructure Demand Drivers Future Population Growth and Rising Urbanization Powerful secular forces such as globalization and 10 Total Population 8.8 9.0 9.2 urbanization are driving the increasing need for new and 8.3 8.6 7.7 8.0 Urban Population 8 7.3 6.5 6.9 POPULATION (billions) improved infrastructure around the world. It is estimated 5.7 6.1 that $25 to $30 trillion will be allocated toward global 6 5.3 4.5 4.9 infrastructure over the coming two decades—$650 billion of 3.7 4.1 3.0 3.3 4 which will be spent over the next two years.1 2.5 2.8 2 RISING POPULATION GROWTH AND URBANIZATION 0 As illustrated in the adjacent chart, half of the world’s nearly 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 7 billion people now live in cities. This rising urbanization Source: United Nations, 2009 is putting increased demands on energy distribution and water systems, roads, hospitals and schools in cities around the world. Projected Annual Global Infrastructure Investment ($B) GLOBAL DEMAND FOR NEW INFRASTRUCTURE The global economy could see up to $30 trillion of Russia / FSU infrastructure investments in the next twenty years, with Europe $56 North America $305 nearly 40% supporting transportation upgrades.2 While $180 China emerging markets have the widest investment gaps to fill, Middle East $200 the chart to the right shows that inferior infrastructure is a Africa $56 $10 Non-China Asia growing problem for many developed nations as well. $200 40% AGING OR INADEQUATE INFRASTRUCTURE 35% Latin America 30% $45 Existing U.S. infrastructure, much of which was constructed 25% 20% over 50 years ago, has been given an overall “poor” rating 15% 10% by the American Society of Civil Engineers. Their 2009 5% 10% 30% 38% 23% 0% report concluded that $2.2 trillion is needed over a 5-year Water Power Transport Telecom Source: CIBC World Markets, 2009 period to bring conditions to acceptable levels.3
- 2. MARKET MATTERS NOVEMBER 2009 Infrastructure Portfolio Benefits Infrastructure investments may become an increasingly essential element of asset allocation. Infrastructure’s distinct characteristics have historically generated equity-like returns with moderate volatility. It also can provide low correlations to other asset classes, which can enhance the risk-adjusted performance of a diversifed portfolio. Other important characteristics fundamental to infrastructure include: INELASTIC DEMAND Infrastructure provides an economic lifeline, delivering Global Air Traffic Growth essential, irreplaceable services that make the asset class 100 GLOBAL REVENUE PASSENGER TON-MILES relatively resistant to wide swings in demand, despite September 11 shifts in economic growth or other external events. For Attacks 80 2001 example, as seen in the chart to the right, air traffic growth Recession has proven to be highly resistant to global events, and and Gulf War (in millions) 60 1990-1992 continues to climb steadily. Recession 40 1980-1982 Oil Shocks 1974-1976 FREE OF COMPETITION 20 Due to capital and commodity constraints, infrastructure assets tend to operate with little to no competition. 0 1960 1970 1980 1990 2000 Government oversight and regulation may also benefit companies that own or manage basic public resources by Source: Bureau of Transportation Statistics, 2009. creating an additional barrier to entry and further limiting competition. Life of Infrastructure Assets before Major Maintenance Is Required Tunnels 60 LONG-LIFE ASSETS WITH LOW MAINTENANCE An infrastructure asset’s life can span hundreds of years. Electricity Gridlines 60 The chart to the right shows that periodic maintenance is Bridges, Trestles & Overpasses 45 required only every 10-60 years. Sewage Treatment & Disposal 30 Highways, Roads & Streets 30 INFLATION-LINKED CASH FLOWS Waste Disposal Facilities 20 Cash flows generated by infrastructure companies are 10 Telecommunication Cables typically linked to measures of economic growth, such 0 10 20 30 40 50 60 as inflation. For instance, toll road and bridge contracts NUMBER OF YEARS often include provisions linking toll increases to the rate of Source: Macquarie Research, May 2007. inflation. Forward Global Infrastructure Fund The Forward Global Infrastructure Fund takes a comprehensive approach to infrastructure investing, offering access to: • companies that operate existing infrastructure assets, which typically benefit from more stable cash flow and offer a lower risk-return profile; and • companies that stand to benefit from the development of new infrastructure networks and services around the globe, which may include more growth-oriented investments. The primary drivers of infrastructure investing—globalization, demographic shifts and technological advances—are fueling a potential $30 trillion spending spree in the next 20+ years. Combined with global stimulus efforts, we believe the infrastructure market may experience tremendous growth over the next several years. By offering investors broad exposure to infrastructure investments, the Forward Global Infrastructure Fund offers a compelling vehicle through which to access global infrastructure. For more information, visit us at www.forwardfunds.com or call (888) 312-4100. 1 CiBC World Markets, 2009. 2 Ibid., 2009. 3 ASCE, 2009. The Forward Global Infrastructure Fund seeks total return through capital appreciation and current income. The Fund invests primarily in global infrastruc- ture-related securities. Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.The S&P Global Infrastructure Index is designed to provide liquid exposure to the leading publicly listed companies in the global infrastructure industry, from both developed markets and emerging markets. You cannot invest directly in an index. Because the fund concentrates its investments in infrastructure-related entities, the fund has greater exposure to the potential adverse eco- nomic, regulatory, political and other changes affecting such entities. The fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the fund is more exposed to individual stock volatility than a diversified fund. The fund also invests in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. You should consider the investment objectives, risks, charges and expenses carefully before investing. A prospectus with this and other information about the funds may be obtained by calling (800) 999-6809 or by downloading one from www.forwardfunds.com. It should be read carefully before investing. Not FDIC Insured | No Bank Guarantee | May Lose Value Forward Funds are distributed by ALPS Distributors, Inc. FWD002240 013110