What you need to know: • Due to decades of underinvestment, North American infrastructure has aged and deteriorated significantly to a point where governments are beginning to rapidly increase spending in the sector. • The declining stability of the electrical grid as well as electrification trends only exacerbate the issues at hand. • This report highlights five small-cap Canadian equities with torque to thematic trends in infrastructure spending. Investment Thesis Aging Infrastructure It is well known that North American infrastructure is reaching the end of its useful life and will need significant repairs and upgrades over the next decade. This poses a major risk to society and will continue to receive increased government support in the decades to come. We think the government support will need to accelerate given the widening funding gap as well as inflation. Canada Canada’s last infrastructure report card (read here) concludes that the state of Canada’s infrastructure is at risk and will require significant spending in the coming decades. It stated that over 80% of roads and bridges are more than 20 years old. It also stated that 40% of roads and bridges, 30% of recreational facilities, and 30% of water infrastructure are in fair/poor/very poor condition, as seen in the graphic below. When we look at the typical asset deterioration curve (Figure 2), 40% of the quality of the asset decreases between years 15 and 20; which is currently where most North American infrastructure is. This creates a funding problem where significant repairs and maintenance are required, which could’ve been done more efficiently in the earlier years. As such, we think equities with exposure to this theme have massive tailwinds that will support years of growth. While in the U.S., its infrastructure report card was graded a C- (read here), an improvement over the D+ grade given in 2017. The report highlighted key statistics such as there being a water main break every two minutes, 43% of roads being in poor or mediocre condition (this figure has been stagnant), and 231,000 bridges needing repair work. The ASCE estimates that by 2039, the continued underinvestment in U.S. infrastructure will impact US$10 trillion in GDP, more than 3M jobs, and US$2.4 trillion in exports. The graphic below displays the growing funding gap required to solve these issues. This issue gets exacerbated even further due to growing backlogs and deficits for simple maintenance work. Again, while government support has increased in recent years, spending needs to significantly accelerate to meet the growing funding problem.