“Infrastructure finds can be very different indeed and so it can be difficult for the investor to compare like-for-like,” says Neil Shillito, director at SG Wealth Management.
“For example, some funds invest almost solely in one sector such as water or agriculture, others in a much wider range.”
Darius McDermott, managing director of Chelsea Financial Services, adds: “For example: the First State Global Listed Infrastructure funds invests in related equities and is an offshore open-ended fund, while the HICL Infrastructure Company Limited is an investment trust investing in assets and projects.”
There are several other ways in which they can differ, points out Peter Meany of First State Investments.
“The global listed infrastructure universe is capitalised at over $1.5 trillion, allowing investors to diversify across various infrastructure sectors and geographies, and providing ample scope for different approaches to be taken by fund managers within the sector.”
For example, one difference can be the benchmark against which the funds are managed and the fund manager’s alignment to it. The two most commonly-used infrastructure benchmarks are the UBS Global 50-50 Infrastructure & Utilities Index, and the S&P Global Infrastructure Index.
Mr Meany points out that, for example, the S&P index has a higher weighting of oil and gas pipeline companies and emerging markets, and a lower weighting of Japanese infrastructure companies than the UBS index. The UBS index constituents include rail companies, and mobile tower companies, which the S&P index does not.
He adds that another differentiator within the sector relates to emerging markets infrastructure stocks.
“Some infrastructure funds choose to have exposure to emerging markets companies; others keep this to a minimum. Emerging markets infrastructure companies are more exposed to the risk of cyclical slowdown, as well as to country, political and currency risks.
“There is therefore a broader spectrum of potential returns for an infrastructure portfolio containing emerging market assets, than for one investing in developed economies’ assets.”
