Utilities and toll roads power ahead as infrastructure tailwinds build

Listed infrastructure delivered again in 2025. Moreover, the outlook for 2026 appears supportive.

According to ClearBridge Investments, an inflection in electricity demand and solid earnings growth underpinned performance last year. Importantly, lower nominal bond yields could add further support in the year ahead.

In a market still wrestling with volatility, infrastructure’s defensive traits have come back into focus.

Defensive by design

Essential-service assets such as utilities tend to prove resilient in uncertain times. Their earnings often rest on long-term contracts and regulatory frameworks. That stability matters when economic visibility dims.

ClearBridge argues that even in choppy macro conditions, infrastructure stands out for steady returns. In other words, predictability still commands a premium.

The ClearBridge Global Infrastructure Value Strategy reflected that pattern. On an absolute basis, five of eight sectors contributed positively in the last quarter. Electric utilities and toll roads led the charge, while renewables and energy infrastructure detracted.

Relative to the FTSE Global Core Infrastructure 50/50 Index, the strategy outperformed in the fourth quarter. Stock selection in electric, water and gas utilities, as well as toll-roads, drove that result.

The electricity demand surge

The most compelling theme sits in power demand. Structural forces are gathering pace.

The tailwinds include the energy transition, climate resilience spending and rising electricity demand, particularly from AI data centres.

Utilities are building-out poles and wires to connect renewables to the grid. They are also investing in EV charging networks. Crucially, much of this spending is regulated. That means utilities can earn regulated returns on capital deployed.

At the same time, climate change mitigation and adaptation are driving resilience upgrades across electricity networks. Grids need to withstand extreme weather. That requires capital, and capital expenditure supports earnings growth.

Then there is AI. Data centres consume vast amounts of power. As AI adoption accelerates, so too does demand for reliable electricity supply.

ClearBridge expects this trend to continue through 2026. The explosive rise of AI and data centres should drive unprecedented demand for electricity and gas. In response, utilities are likely to invest heavily in smart grids, reliability and efficiency.

Toll-roads: Pricing power and longevity

While utilities dominated, toll-roads also delivered.

Ferrovial, a Dutch-based global toll-road and airport operator, was among the top contributors to absolute returns in the quarter. Its core asset, Highway 407-ETR in the Canadian province of Ontario, announced higher-than-expected toll increases for 2026.

That matters. The concession runs through to 2098. Population growth in Ontario continues to support traffic volumes. Meanwhile, congestion underpins pricing power.

In addition, Ferrovial’s US listing qualified for Nasdaq 100 inclusion in December; ClearBridge views that as positive validation for the stock.

Toll-roads offer a simple but powerful proposition. They provide essential transport links. They often operate under long-dated concessions. And they can adjust pricing over time, demonstrating how infrastructure can act as a robust hedge against inflation.

Stock selection still counts

The strategy’s top contributors included SSE, Ferrovial, Severn Trent, NextEra Energy and Enel.

SSE, headquartered in Scotland, is vertically integrated across generation, networks and retail. It is also the UK’s largest renewable energy generator. Its share price rose as funding risks diminished and UK macro concerns eased.

Not every position worked. Detractors included WEC Energy, Brookfield Renewable, DTE Energy, OGE Energy and Redeia. Nevertheless, sector positioning within the infrastructure bucket and stock selection overall added value relative to the benchmark.

Rethinking benchmarks

ClearBridge also makes a broader point about how investors assess infrastructure.

Hurst argues that an absolute return, inflation-linked benchmark is the most appropriate primary measure for long-term infrastructure strategies. The aim, he suggests, is consistent real returns over time, rather than relative performance alone.

That framing resonates in an environment where bond yields have fallen and inflation remains a live issue. Infrastructure assets often carry explicit or implicit inflation linkage. Therefore, real return objectives align naturally with the asset class.

Lower yields, higher conviction

Finally, the rate backdrop helps. ClearBridge notes the added benefit of lower nominal bond yields heading into 2026.

Lower yields can increase the relative appeal of stable, income-generating assets. They also support valuations, all else equal.

Of course, risks remain. Regulatory settings can shift. Political intervention can emerge. And capital intensity always demands disciplined balance sheet management.

Yet the structural story looks intact. Decarbonisation, electrification and digitalisation are not short-term trends. They are multi-decade shifts.

For advisers constructing portfolios, the message is clear. Utilities and toll-roads continue to offer resilient cashflows. Moreover, they sit at the centre of powerful economic transitions.

In a world hungry for both growth and defence, listed infrastructure may continue to occupy prime real estate.

Nicholas Way

Nicholas Way is a contributing editor at The Inside Adviser and has covered business, retirement, politics, human resources and personal investment over a 50-year career.