Yield-hungry investors could be drawn to the infrastructure sector, based on its track record. An increasing number of advisers are now recommending listed infrastructure funds to their clients on the back of historic yields between 4 and 6 per cent.
These funds operate in two ways. They can buy shares in companies that specialise in building, developing or operating infrastructure projects. Or, they can directly own infrastructure – in schools, hospitals or public sector offices, for example – and collect a rent on them. Either way, investment in the sector seems to be getting more popular.
“Yield with preservation of capital is clearly key for investors at the moment and with deposit rates low, finding something with a return of nearly 5 per cent in a low risk spectrum is attractive,” says Tony Roper, director at InfraRed Capital Partners and manager of the HICL Infrastructure fund.
Analysts have said that, along with attractive yields, liquidity is an important factor driving the inclusion of alternative assets in a portfolio.
Table 1 shows a list of unit trusts and investment trusts with exposure to infrastructure. In the unit trusts sector, First State Global Listed Infrastructure fund posted a return of £1,759 on an initial investment of £1,000 over five years to 1 June, according to FE data. The fund invests in shares of companies that are involved in infrastructure around the world, but is overweight developed markets including North America and the UK. A total of 19 unit trusts have exposure to the infrastructure space.
When it comes to investment trusts, the Independent Investment Trust fund returned £2,122. The fund has only 2.9 per cent allocated to the infrastructure space, although of the seven funds with exposure to the infrastructure sector, this fund has the lowest allocation. Foresight Group has 100 per cent allocated to infrastructure but saw a £960 return over three years – the longest period for which figures were available.
The Infrastructure sector is attractive in both developed and emerging markets, however in the case of emerging markets, investors must take risk into account. A closer look at infrastructure assets will show that they generally have high development costs and long lives. This means that they are generally managed and financed on a long-term basis.
In the past, the infrastructure sector has generally been funded by governments but in the last few years the role of government has declined and more private sector money has led to public private partnership (PPP) models.
