Staff Reporter

Larry Fink, CEO of BlackRock (NYSE: BLK), recently recommended a shift from the traditional 60/40 portfolio model to a new 50/30/20 structure. This updated model allocates 20% to infrastructure and real estate.

While real estate investment trusts (REITs) are widely available, infrastructure investments are less straightforward. Here’s how to navigate this space and take advantage of a substantial 6% yield.

Rethinking the Balanced Fund Mix

In his 2024 shareholder letter, Fink addressed the classic balanced fund mix of 60% stocks and 40% bonds. This approach has served many small investors well, allowing them to invest without constantly monitoring the market.

Setting up a 60/40 portfolio typically requires just two exchange-traded funds (ETFs) and two trades a year.

For instance, one could invest in the Vanguard S&P 500 ETF and the Vanguard Intermediate Term Corporate Bond Index ETF, then adjust the mix annually. For those who enjoy investing, buying individual stocks and bonds is another option, though a bond ETF is advisable due to the complexities of the bond market.

However, Fink believes a more modern approach is necessary, as the 60/40 rule has become somewhat outdated. New asset classes, including real estate, infrastructure, and private equity, have emerged. While private equity can be difficult for small investors to access, real estate is already covered by REITs, leaving infrastructure as a compelling opportunity.

A Comprehensive Infrastructure Investment

Infrastructure encompasses large physical assets that typically generate steady cash flows, such as utilities, toll roads, energy pipelines, and shipping ports. While there are companies specializing in these areas, Brookfield Infrastructure

(NYSE: BIPC)(NYSE: BIP) stands out as a one-stop shop for diverse infrastructure investments.

The partnership share class offers a 6% distribution yield, while the corporate share class yields about 4.8%.

Both classes represent the same entity, with yield differences stemming from investor demand—some institutional investors, like pension funds, are restricted from purchasing partnerships. The partnership has increased its distribution annually for 18 years, with an average annual growth rate of 7% over the past decade.

Brookfield Infrastructure’s portfolio includes utility assets (26% of funds from operations), transportation assets (41%, including toll roads and railways), oil and gas pipelines (21%), and data-related investments (12%).

These assets are geographically diversified, with 68% of funds from operations coming from the Americas, 17% from Europe, and 15% from Asia. This level of diversification is hard to find in other infrastructure companies and can even rival some ETFs and mutual funds.

Brookfield Infrastructure is managed by Brookfield Asset Management (BAM 1.03%), a major Canadian asset manager. The company operates more like a private equity firm—acquiring undervalued assets, upgrading them, and selling at favorable prices, with proceeds reinvested into new acquisitions.

Investing in Brookfield Infrastructure effectively means partnering with Brookfield Asset Management, which aligns with two of Fink’s recommended categories.

A Smart Addition to Your Portfolio

Brookfield Infrastructure presents a straightforward way to incorporate infrastructure into a 60% stock/40% bond portfolio, aligning with Fink’s 50/30/20 suggestion. However, even if you’re skeptical of Fink’s advice, Brookfield Infrastructure stands out as an attractive investment.

With its high yield, consistent distribution growth, and globally diverse portfolio of cash-generating assets, it fits well within any income-focused investment strategy.

The information provided here is for general informational purposes only and should not be considered legal, tax, accounting, financial, or investment advice. It is your responsibility to determine whether any investment is suitable for you, taking into account your investment objectives, risk tolerance, and personal financial situation. Be sure to evaluate the merits and risks of the information before making any decisions.