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

Artificial intelligence ('AI') enthusiasm continued to push US markets higher, despite the ongoing conflict in Iran. Strong results from companies such as Dell and Advanced Micro Devices boosted the tech sector, resulting in a +8.4% increase in the NASDAQ. Despite not experiencing the same sharp rise, the S&P 500 rose +5.2%. Similar to the prior month, US markets outpaced their international peers, with the Euro Stoxx 50 and FTSE 100 rising +2.9% and +0.3% during the month, respectively.

Domestic markets continued to grind higher, with the ASX All Ordinaries Accumulation Index rising +1.2%. Miners led the way (+10.4%), whilst the Consumer Discretionary sector also outperformed (+6.3%), as investors reduced the chance of further RBA rate hikes following the release of softer economic data. From a negative standpoint, CSL's fall from grace continued (-22%) after another earnings downgrade.

In bond markets, the US 10-year bond yield rose +7 basis points (bp) to 4.44%, whilst its Australian counterpart fell - 23bp to 4.8%. The Australian dollar fell marginally during the month to US$0.72, implying a decrease of 0.1 cents.

A new data product launched recently by CNBC and wealth technology platform Addepar offers something genuinely useful: a quarterly window into how family offices (some of the most sophisticated pools of private capital in the world) are actually allocating their money.

The inaugural reading is instructive, and not entirely for the reasons its authors intended.

According to the tracker, equities now account for 34% of family office portfolios, up from 32% a year ago. This makes equities the largest and fastest-growing asset class in the cohort. Public stocks, the report notes, were one of the only categories to grow as a share of portfolios over the past year. Eighty per cent of those equity holdings sit in domestic US stocks.

That is a lot of conviction in a single asset class. And when an asset class commands that kind of weight in the portfolios of the most well-resourced investors in the world, it is worth pausing to ask a simple question: what does the price of that asset actually reflect?

What the Numbers Say

The Shiller CAPE ratio is the cyclically adjusted price-to-earnings ratio that smooths earnings across a full business cycle to filter out short-term distortions.

• It currently sits at approximately 40.7.
• The long-run median is 16.
• The long-run average is closer to 17.

To put 40.7 in context: this is only the second time in the 155-year recorded history of the metric that US equities have traded above the 40 threshold. The first was the peak of the dot-com bubble in late 1999 and early 2000. History does not repeat, but the company the current reading keeps is worth noting.

The Buffett Indicator is the total US stock market capitalisation expressed as a percentage of GDP, which Warren Buffett himself described as "probably the best single measure of where valuations stand at any given moment".

• It currently sits at approximately 220-240%, depending on the precise measure used.
• That places it approximately two standard deviations above its long-run trend, firmly in territory that Buffett described in 2001 as "playing with fire." 

Based on current levels, some models project the US equity market to deliver negative real returns over the next eight years. These are not fringe indicators. They are among the most widely respected tools in long-run valuation analysis. And right now, they are aligned in pointing in the same direction.

The "This Time is Different" Argument Deserves a Hearing

The most intelligent counter-argument to any valuation-based concern is the structural one: that the composition of the market has changed so fundamentally that historical averages are no longer the right benchmark.

It goes something like this. The S&P 500 today is dominated by a handful of companies including Microsoft, Nvidia, Apple, Alphabet and Meta that are not merely large but potentially transformative. Artificial intelligence, the argument runs, represents a genuine productivity step-change: the kind that compresses costs, expands margins, and accelerates earnings growth across the economy in ways that prior cycles simply did not.

If AI delivers on even a fraction of its projected economic impact, the earnings denominator in every valuation ratio is going to look very different in five years. On that view, a CAPE of 40 may not be irrational but simply forward-looking in a way that backward-averaging cannot capture.

This argument is not frivolous. There are serious economists and investors who make it carefully, and it deserves to be engaged rather than dismissed. But there are three problems with anchoring a 34% equity allocation to it:

• The Track Record of Structural Arguments: The first is that "this time is different" has a reliable track record of being wrong at precisely the moments it feels most convincing. In 1999, the internet was also real, also transformative, and also going to change everything. It did. It just didn't justify the valuations attached to it at the time. Structural change and stretched valuations are not mutually exclusive, and the latter has historically resolved itself regardless of the former.
• Timing and Distribution: The second problem is one of timing and distribution. Even if AI does deliver a step-change in corporate earnings, the market has to some extent already priced that expectation in. The question is whether current equity prices already reflect the optimistic scenario, leaving little margin for error if delivery is slower, more uneven, or more competitively distributed than the consensus assumes.
• Concentration Risk: The third is concentration risk. The AI thesis is not a broad equity thesis, but a thesis about a small number of companies. A portfolio with 34% in public equities, 80% of that in US stocks, is substantially a bet on a narrow slice of the index that carries the AI premium. That is a very specific wager dressed up as asset class diversification.

The honest position is this: AI may well be structurally significant enough to justify higher-than-historical valuations.

But "higher than historical" is not the same as "as high as they currently are," and it is not a framework that removes the need to ask what happens if the thesis takes longer, costs more, or distributes differently than expected.

The Problem with Consensus

There is an important distinction between a decision that looks correct and a decision that is correct. When the world's most sophisticated investors are adding to equities at exactly the moment those equities are trading at historically extreme valuations, the two things can diverge significantly.

This is not a criticism of family offices. The past several years have rewarded equity concentration generously, and the behavioural pull of recent performance is well-documented. Professor Ulrike Malmendier's research on what she calls the "experience effect" demonstrates that investors systematically overweight the market conditions they have personally lived through.

A decade of strong equity returns leaves a mark. It shapes expectations, calibrates assumptions, and makes elevated allocations to equities feel entirely reasonable. Until it doesn't.

The CNBC/Addepar data shows equities growing as a share of family office portfolios at the same time that every major long-run valuation metric is flashing caution. That is not a coincidence. It is precisely what the experience effect predicts.

What Diversification is Actually Supposed to Do

The case for trend following as a complement to equity-heavy portfolios is rarely more relevant than it is in a high-valuation environment. Trend following does not require a view on whether equities will correct, or when. What it does is participate in sustained price moves - in any direction, across any asset class - without requiring the market to go up.

In environments where equities are priced for near-perfection and deliver something less than that, trend following has historically provided what researchers call crisis alpha: genuine uncorrelated returns precisely when conventional portfolios need them most.

There is a further point worth making, and it is one that often surprises people. Trend following does not require equities to fall in order to perform. If the AI thesis is correct and US equities continue their ascent, a trend-following strategy will participate in that move. It is, by design, long whatever is going up.

The irony is that trend following can trade a bubble just as effectively as it can trade a correction. It does not need to predict which one is coming. What it needs is for prices to move in a sustained direction (and markets at extreme valuations tend to be nothing if not directional) on the way up and, eventually, on the way down. The exit from a trend is governed by the same rules as the entry: no heroics, no forecasting, no requirement to be right about the macro.

The ECCM Systematic Trend Fund trades across more than 90 global futures markets - commodities, fixed income, currencies, equity indices - allowing it to capture trends wherever they emerge. In Q1 2026, that meant energy markets, where sustained directional moves provided meaningful returns while equity-heavy portfolios struggled.

The point is not that this will always happen. The point is that the opportunity set is genuinely broader than a portfolio concentrated in US public equities. The efficient frontier - the concept that the best risk-adjusted portfolio is not necessarily the highest-returning one, but the one that combines assets most efficiently - is often invoked in theory and ignored in practice. The Addepar data suggests that family offices, for all their sophistication, are no exception.

A Note on Expectations

None of this is a prediction. Elevated valuations can persist for longer than any rational model suggests they should. The CAPE ratio was above 30 for years before the dot-com correction. Markets can stay expensive.

But there is a difference between accepting that markets can remain expensive and deciding that 34% of a portfolio in expensive equities (and concentrated 80% in a single country) is the appropriate response to the current opportunity set.

At current valuations, US equities are being asked to do a lot of heavy lifting in portfolios that may have limited room to absorb disappointment. The question sophisticated investors should be asking is not whether equities belong in a portfolio. They do.

The question is what work those equities are being expected to do, and what happens to the portfolio if that work doesn't get done. Genuine diversification - across return types, not just asset labels - exists precisely for that scenario.

Wholesale clients can find more information on ECCM and the ECCM Systematic Trend Fund at Australian Fund Monitors and ECCM's website.