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Fund Review: Infrastructure

Introduction

Generally, these vehicles invest in government- or state-owned buildings such as schools and hospitals, as well as transport-related projects including airports, roads and motorway service stations.

There is even a renewables side to the asset class, as reflected in the Renewable Energy sector of the Association of Investment Companies (AIC).

Increasingly, investors are allocating to infrastructure, with eight investment trusts currently sitting in the AIC Infrastructure sector holding assets totalling £6.3bn. The AIC reveals the sector yielded 5 per cent in the past 12 months, making it easy to understand its appeal.

Meanwhile, the MSCI World Infrastructure index gained 9.8 per cent in the past 12 months to August 13, FE Analytics data shows. There are also some open-ended offerings in the infrastructure space, most notably from Lazard and First State Investments.

In a recent blog post Nick Britton, head of training at the AIC, suggests advisers are favouring sectors that can “offer some insulation from a downturn in equity markets [such as] property and infrastructure because of their ownership of real, income-generating assets”. Both sectors appeared in the top three investment trust sectors in the first quarter of 2015.

So far in 2015 there has been new infrastructure launch Sequoia Economic Infrastructure Income, which raised £150m, while last year there were two new infrastructure renewable energy launches: John Laing Environmental Assets Group and NextEnergy Solar.

Annabel Brodie-Smith, communications director at the AIC, notes the sector’s popularity this year that has seen it trading at a 12 per cent premium.

“This has been driven by the strong demand for sustainable income and the sector is underpinned by long-term contracts with the public sector,” she explains. “Infrastructure also has capital-preservation qualities and has a low correlation with other asset classes.”

Tony Roper, a managing partner at InfraRed Capital Partners, the investment manager of the HICL Infrastructure investment trust, recalls: “The UK government in the early 1990s started procuring infrastructure for schools, hospitals and other government buildings under the PFI [private finance initiative] which was launched in 1992.

“That procurement model, where they basically wanted to procure a school and have it maintained or serviced for 30 years, has now been exported around the world because they [governments] know what it’s going to cost them per annum for the next 30 years and they know they’re going to get a fully serviced and maintained infrastructure asset.”

But Mr Roper observes infrastructure assets in the UK are becoming scarcer, which is creating some supply-and-demand issues.

He says: “This government has an infrastructure plan but there isn’t a lot of new procurement going on. The number of investments available to buy is increasing slowly but it’s not increasing as fast as the demand, so demand for investment is outstripping supply.”

THE PICKS

First State Global Listed Infrastructure

This £1.2bn fund invests in firms involved in infrastructure and currently has almost half its assets in the US. It launched in October 2007 and is co-managed by Peter Meany and Andrew Greenup, who have clocked up several years of solid returns. According to FE Analytics, in the five years to August 13 it returned 66.5 per cent, beating the IA Global sector’s 55.7 per cent average return over the same period. The portfolio has 20.2 per cent in electric utilities, 20.7 per cent in motorways and railtracks, and 12.8 per cent in oil and gas transportation and storage.

John Laing Infrastructure

This investment trust launched in November 2010 and now has stakes in 56 “low risk” operational public-private partnership infrastructure projects. It has a net asset value of £893m and is co-managed by David Marshall and Andrew Charlesworth of John Laing Capital Management. FE Analytics shows the trust has generated steady returns. In the three years to August 13, it returned 30.9 per cent compared with the AIC IT Infrastructure sector average of 38.7 per cent. Its largest sector weighting is to health at 39.3 per cent, while education-related projects account for 16.7 per cent.

EDITOR’S PICK

International Public Partnerships

The £1.1bn trust was listed in November 2006 and invests in low-risk infrastructure assets. The portfolio boasts geographically diverse investments in 112 infrastructure projects, with courthouses, police stations, rail operations and schools among its investments. The performance of the trust, which is run by adviser Amber Infrastructure, has been impressive. Over five years to August 13 it returned 49.2 per cent, although in the past 12 months performance has fallen behind some of its peers, with the trust delivering an 8 per cent return against the AIC IT Infrastructure sector’s 14 per cent.

In this special report