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Fund Review: Infrastructure


Infrastructure encapsulates a fairly specialist range of investments, including private and public sector projects that come under the Private Finance Initiative (PFI) and Public-Private Partnerships (PPP). These can involve the construction of schools or hospitals, or the development of road networks, for example.

According to FE Analytics, the MSCI World Infrastructure index produced a respectable performance in the 12 months to October 24 2014, delivering a return of 7.06 per cent. Its performance was ahead of both the MSCI World index and the FTSE 100, which generated returns of 6.34 per cent and a loss of 1.45 per cent respectively. The only index to generate a higher return was the S&P 500, at 14.35 per cent.

The latest figures from the Association of Investment Companies using Matrix Solutions’ Financial Clarity suggests that investors are keen to gain exposure. While the Global and UK Equity Income sectors were the most popular among advisers and wealth managers, accounting for 18 per cent and 16 per cent of the total purchases of investment trusts respectively in the second quarter of 2014, infrastructure was among the next most popular sectors.

Trusts that specialise include 3i Infrastructure, Bloomsbury Infrastructure India and John Laing Infrastructure.

Open-ended funds that invest in infrastructure assets number just four, a search of FE Analytics shows, with offerings from First State, CF Canlife and Invesco.

Ben Loomes, co-head of the infrastructure business at 3i Group, says: “I think it’s a highly competitive market for new investment in infrastructure and that’s because infrastructure assets fundamentally deliver long-term, stable, attractive yield.

“In the low interest rate environment that we’ve had for a number of years, any kind of stable, attractive yield is incredibly valuable to people.”

In a recent note, David Jane, manager of Miton Group’s multi-asset funds, claims that infrastructure “is an important piece in the recovery jigsaw”.

He says: “Investment in infrastructure has been weak in many economies, yet it is an important piece in the recovery jigsaw due to its ability to underpin sustainable economic growth. It tends to do this by improving demand in the short term through job creation and in the long term, improving productivity through better transport, power, water and communication systems.”

Mr Jane adds: “A number of factors explain why investment has been weak. Undoubtedly, a lack of confidence in the recovery has a role to play. After all, these are generally long-term, large, complex projects, which often come with a big slice of political risk. It also reflects a change in the funding environment, specifically for governments (now heavily debt-laden) and big banks (generally still repairing their balance sheets), which traditionally have played a key role.”

He notes that infrastructure is an “evolving” asset class that has little correlation to other asset classes and low volatility, making it suited to long-term investors.


First State Global Listed Infrastructure

Co-managed by Peter Meany and Andrew Greenup, the fund aims to provide income by investing in firms involved in infrastructure. This includes utilities, highways and railways, airport services, marine ports, and oil and gas storage and transportation. It launched in 2007 and in the five years to October 24 delivered a return of 64.83 per cent. It is benchmarked to the UBS Global Infrastructure & Utilities 50-50 index. Its top 10 holdings include Crown Castle International and East Japan Railway.

HICL Infrastructure

InfraRed Capital Partners is the investment adviser of this investment trust, which listed in 2006 and has a market capitalisation of more than £1.6bn. It specialises in social and transportation infrastructure. At the end of June 2014, it had stakes in 96 projects. Its 10 largest investments include Allenby & Connaught, Colchester Garrison and the Dutch high-speed rail link. The portfolio has 34 per cent in health, 24 per cent in accommodation and 22 per cent in education. Over the five years to October 24, the trust produced a return of 67.24 per cent. The AIC IT Infrastructure sector average is 54.75 per cent.


John Laing Infrastructure

This investment trust was listed in November 2010 and has a net asset value of £820.7m. At the end of June 2014, it had stakes in 52 PPP infrastructure projects. Its objective is a “strong, predictable” dividend yield and it invests mainly in assets in the operational phase with public sector revenue streams. The portfolio has a 74.2 per cent weighting to the UK excluding Scotland, 11.3 per cent to Scotland and 10.1 per cent to North America. It has clocked up top quartile performance in the AIC IT Infrastructure sector over one and three years, delivering 37.94 per cent in the three years to October 24, against a 33.16 per cent sector average, FE Analytics shows. The trust could be a long-term prospect for investors.

In this special report