Strong gains prompt infrastructure sales

Investment managers are moving to sell out of expensive listed infrastructure investment trusts as share prices spiral up.

Listed infrastructure trusts invest mainly in private finance initiatives and public-private partnerships, which are structures set up to allow private investors to invest in infrastructure projects, such as roads and hospitals.

The low volatility of the trusts, combined with a yield that is higher than corporate bond funds, has made the trusts popular with investors in recent years.

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But that popularity has also meant that some trusts now trade at a large premium to their net asset values (NAVs), which means the shares are trading at a much higher value than the underlying assets.

Sanlam Private Investments recently told its investment managers to sell the HICL investment trust partly due to its premium, which has been fluctuating between 10 and 15 per cent in recent months.

According to data from the Association of Investment Companies (AIC), the trust is currently trading on a premium of 11.2 per cent, more than double its 5.3 per cent yield.

The discretionary manager also said the size of the trust, which has grown to £1.4bn in total assets, could work against it in securing new projects.

Sanlam is not abandoning infrastructure trusts altogether, but it prefers GCP Infrastructure Investments, which has a premium of 5.7 per cent, and the John Laing Infrastructure trust, which has a premium of 9 per cent.

David Hambidge, head of multi-asset at Premier Asset Management, said he had sold down his holding in HICL in the past 12 months from 10 per cent of his income-focused funds to less than 2 per cent today.

The manager said his team was being “very selective” in infrastructure investments, due to the high premiums being applied to some trusts.

“We are nearer the end of the party with infrastructure than the beginning,” he said.

“It is not nearly as compelling now as it was in 2007-09. It seems much easier now to raise capital for these investments than it was and they trade at a big premium to NAV.

“[But] people still have an appetite for what are essentially government-backed cashflows. The question is what assets are vulnerable to interest rate rises? I would put them on the list with corporate and government bonds.”

Justin Oliver, chief investment officer at discretionary manager Canaccord Genuity, said he was sticking by his investments in infrastructure trusts because he sees them as a long-term, stable investment, not a short-term tactical trade on the premium or discount.

He said the high premiums had been around for some time and he thought it would be very unlikely they would drop in the medium term given the demand for such low-volatility uncorrelated assets.

However, he admitted that he preferred to add to his holdings when the trusts raise money through new share issues because then he could get hold of the shares at the NAV rather than at a premium.