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Larry Fink, the CEO of BlackRock (NYSE: BLK), has proposed a shift from the traditional 60/40 investment portfolio toward a 50/30/20 structure. This new model allocates 20% to assets such as infrastructure and real estate, acknowledging the evolving financial landscape. While real estate investment trusts (REITs) are relatively accessible, infrastructure investments provide more of a challenge, highlighting the need to explore a globally diversified infrastructure firm that boasts a substantial 6% yield.
Rethinking the Balanced Fund Approach
In his 2024 shareholder letter, Fink addressed the conventional balanced fund allocation of 60% stocks and 40% bonds. This guideline has typically served small investors well, who often prefer not to delve deeply into investing strategies or market dynamics.
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Establishing and managing a 60/40 portfolio can be accomplished with just two exchange-traded funds (ETFs) and a couple of trades annually. For instance, an investor might purchase the Vanguard S&P 500 ETF alongside the Vanguard Intermediate Term Corporate Bond Index ETF and maintain this balance by swapping the assets as needed. Alternatively, for those interested in a more hands-on approach, selecting individual stocks and bonds—while possibly relying on a bond ETF for ease—can also be effective.
However, Fink suggests that the 60/40 model may be outdated, as numerous new asset classes have emerged, including real estate, infrastructure, and private equity. Private equity, while appealing, is often difficult for smaller investors to access. Real estate is largely covered via REITs, leaving infrastructure as an intriguing avenue worth exploring.
Comprehensive Infrastructure Solutions
Infrastructure encompasses significant physical assets that typically provide stable cash flows, such as utilities, toll roads, energy pipelines, and shipping ports. While various companies focus on specific sectors within this domain, Brookfield Infrastructure (BIP -0.28%) (BIPC 0.28%) stands out as a leader with a broad exposure to diverse infrastructure investments.
Brookfield Infrastructure’s partnership shares yield approximately 6%, while its corporate share class offers a yield around 4.8%. These differing yields reflect varying investor demand, particularly as some institutional entities, like pension funds, cannot invest in partnership shares. The partnership has consistently increased its distributions for 18 consecutive years, with an average annual growth rate of 7% over the last decade.
The firm’s portfolio consists of utility assets (26% of funds from operations), transportation assets (41%, including toll roads and railways), oil and gas pipelines (21%), and data infrastructure (12% for storage and transmission). These investments are strategically spread across the Americas (68% of funds), Europe (17%), and Asia (15%), providing a level of diversification that rivals some mutual funds and other ETFs.
This extensive diversification is not surprising, considering that Brookfield Infrastructure is managed by the well-regarded Canadian asset manager Brookfield Asset Management (BAM 1.03%). The firm operates similarly to a private equity company: acquiring undervalued assets, improving them, and selling them at a profit, with the capital recycled into new investments. Thus, investing in Brookfield Infrastructure means partnering with Brookfield Asset Management, potentially aligning with Fink’s recommended categories.
Evaluating Brookfield Infrastructure Beyond Fink’s Guidance
Incorporating Brookfield Infrastructure would effectively introduce an element of infrastructure to a traditional 60% stock/40% bond portfolio, aligning with Fink’s revised 50/30/20 suggestion. However, you need not adhere strictly to this model to recognize the appeal of Brookfield Infrastructure as an investment. Its impressive yield, consistent distribution growth, and global presence of cash-generating assets make it an attractive option for any income-focused investment strategy.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield Asset Management and Vanguard S&P 500 ETF. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
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