BlackRock's Larry Fink Says "Buy Infrastructure:" Here's How to Do That and Collect a 6% Yield

Larry Fink, the CEO of BlackRock (NYSE: BLK), recently suggested that the 60/40 portfolio model needed to be replaced by a 50/30/20 portfolio. The new 20% portion is dedicated to things like infrastructure and real estate. Real estate investment trusts (REITs) are pretty easy to come by, but infrastructure isn't. Which is why you'll want to get to learn all about this globally diversified infrastructure business offering a huge 6% yield.

Larry Fink updates the balanced fund mix

When Fink penned his 2024 shareholder letter, he included a discussion about the typical balanced fund mix of 60% stocks and 40% bonds. That's a Wall Street rule of thumb that has, overall, been a good choice for small investors who don't want to spend all of their free time thinking about Wall Street and investing theory.

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Two exchange-traded funds (ETFs) and two trades a year are all you need to set up and maintain a 60/40 portfolio. For example, you could buy the Vanguard S&P 500 ETF and the Vanguard Intermediate Term Corporate Bond Index ETF and call it a day. Roughly 365 days later, sell one and buy the other so that your portfolio is back to the 60/40 stock/bond mix. Or, if you enjoy investing, you could buy individual stocks and bonds (a bond ETF would probably still be advisable given the increased complexity of the bond market).

That said, Fink thinks there's a better approach than 60/40, largely because the 60/40 rule is kind of old. A lot of new asset classes have been created since the rule of thumb took hold, including real estate, infrastructure, and private equity. Private equity is hard for small investors to get into. And, as noted, real estate is already pretty well covered by REITs. That leaves infrastructure, which is an interesting and diverse category.

The one-stop shop for infrastructure

Infrastructure includes large physical assets that generally provide reliable cash flows. Think utilities, toll roads, energy pipelines, and shipping ports, among other things. There are companies that specialize in some of these things, but really only one business that has exposure across the broad spectrum of what would be called infrastructure. That business is Brookfield Infrastructure (NYSE: BIP)(NYSE: BIPC).

The partnership share class has a 6% distribution yield while the corporate share class has a dividend yield of roughly 4.8%. The two share classes represent the same entity, with the yield difference caused by investor demand. Specifically, some institutional investors, like pension funds, aren't allowed to buy partnerships. The distribution of the partnership, the longer-lived entity, has been increased annually for 18 consecutive years. The average annualized increase over the past decade was a healthy 7%.

Brookfield Infrastructure has exposure to utility assets (26% of funds from operations, or FFO), transportation assets (41%; toll roads, terminals, and railways), oil & gas pipelines (21%), and data (12%; data storage and data transmission). Those investments are spread across the Americas (68% of FFO), Europe (17%), and Asia (15%). That's more diversification than you'll likely find in any other infrastructure company and it might even rival some exchange-traded funds and mutual funds.

That isn't shocking, however, because Brookfield Infrastructure is managed by giant Canadian asset manager Brookfield Asset Management (NYSE: BAM). And it is run more like a private equity company than an operating business, in that it buys assets when they look cheap, works to upgrade the assets, and then sells them if it can get a good price. The proceeds are reinvested in new assets. Buying Brookfield Infrastructure is really like investing alongside Brookfield Asset Management. You could even argue that it covers two of Fink's preferred categories.

Even if you don't like Fink's advice, you might like Brookfield Infrastructure

Brookfield Infrastructure would be a quick way to add infrastructure to a 60% stock/40% bond portfolio to update it for Fink's 50/30/20 recommendation. But you don't actually need to follow that advice to find Brookfield Infrastructure attractive as an investment. Given the high yield, regular distribution growth, and globally diverse business of cash-generating assets, it would fit pretty well into any income focused portfolio.

Should you invest $1,000 in Brookfield Infrastructure right now?

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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.