“Infrastructure funds have performed reasonably well over the last three and five years, significantly outperforming property and are on more or less on a par with the better UK equity income funds,” notes Darius McDermott, managing director of Chelsea Financial Services.
“Over the shorter term, equity income has fared a little better,” he says.
Neil Shillito, director at SG Wealth Management, adds: “Returns from such funds are nothing special and investors might be better rewarded by investing in a global fund. Infrastructure is a theme play and might reward the patient investor who has a strong conviction.”
But Peter Meany, head of global listed infrastructure at First State Investments, points to some encouraging figures in the last decade. “Global Listed Infrastructure has delivered higher returns with lower risk than general equities.”
He notes that, according to Bloomberg data, over the ten years to January 2013 the UBS Global Infrastructure & Utilities 50-50 Index delivered a total return of 12.9 per cent per annum compared to 8.8 per cent per annum for the MSCI World Index, while the volatility of returns was lower at 12.9 per cent versus 13.9 per cent respectively.
The performance of the sector is driven by a number of factors, says Mr McDermott, including demand, supply of good quality contracts and projects coming to market, barriers to entry and cash flows.
Mr Meany adds that in addition to the defensive fundamentals of the asset class, a number of themes are currently generating growth within specific infrastructure-related sectors.
“One example is structural volume growth. Mobile tower companies are benefiting from an increasing appetite for mobile data. This is driven by smart phone and tablet usage, and requires telecom operators to upgrade and expand their networks.
Other themes he points to are those in global gas markets where developments are leading to opportunities for strategically well-positioned operators, and the restructuring opportunities in the US utility sector whereby foreign companies are selling assets back to local companies.
“The crisis in Europe is also presenting deep value opportunities for patient investors,” Mr Meany further notes.
“For example, while traffic levels on European toll roads face challenges in the short-term, companies such as Vinci in France, Abertis in Spain and Atlantia in Italy are trading at valuations well below historical levels, and offer significant value for long-term investors.”
