Andrew Charlesworth manages this £1.2bn investment trust and says of its objective: “The aim is to invest in stable, yielding infrastructure assets globally. We focus predominantly on PFI [Private Finance Initiative] and PPP [Public Private Partnership] investments.” The vehicle targets an annual dividend yield of 6 per cent on the initial public offering issue price.
The manager explains: “The key for the fund is buying good quality assets globally. We focus on what we term fiscally strong countries.” The portfolio holds 58 operational assets, with the majority of those based in the UK, while the rest are in continental Europe, Finland, the Netherlands, Spain, Canada and the US.
Mr Charlesworth says PFI/PPP projects are at the “lower-risk end of the spectrum” in infrastructure as they are “availability-based projects”. He notes: “As long as the roads [or] the buildings are available to be used, and as long as they’re clean and operational, we receive the steady income from the government. That’s the crux of it, we look for these very stable, steady, government-backed revenue streams – as close to gilts as you can get – with inflation linkage.”
Since the trust’s launch in 2010 there have been a couple of modifications to its investment criteria. The first of these, just over two years ago, was to increase the portfolio’s ability to invest in projects still under construction from 15 per cent up to 30 per cent. The manager explains: “That was because there’s an opportunity for investments into the earlier stage assets where we found value. We haven’t yet used that capacity.”
The second change was to allow up to 10 per cent of the fund to be invested in infrastructure assets that weren’t necessarily PFI or PPP, but exhibited “very similar behaviours”.
Mr Charlesworth points out macroeconomic factors have a significant impact on the investment process. He says: “We look at macroeconomics in a number of ways. A number of factors feed into the returns on the project – for instance, if the projects are inflation-linked that has an impact on us. Tax has an impact on the assets as well.”
| EXPERT VIEW - Darius McDermott, managing director, FundCalibre |
Verdict: This trust has a slightly higher yield than some at 4.8 per cent, although that has fallen, but it also trades on a higher premium of 19 per cent. This is almost double its five-year average premium so something to consider. This vehicle is invested 100 per cent in the operational stage and likes those assets where payments don’t necessarily depend on the level of use, which is a sensible stance and gives confidence at times of uncertainty. It has a heavy weighting to transport and energy, but favours health over energy. The trust has about 10 per cent of investments with less than 10 years of concessions left, but does seem to have a healthy pipeline of new investments to make. |
The manager cites the fund’s recent investment in a Spanish infrastructure project as an example: “This year we made our first investment into Spain, in Barcelona, on the basis the economics had changed. Spain has started to recover, and we look at the covenant of the local government – who is the contracting party on that [project]? Macroeconomics impacts us in that sense.”
The portfolio has made a number of investments so far in 2016, but he adds there have been two separate disposals. In both instances John Laing Infrastructure was a 50 per cent co-shareholder in the project and the other shareholders wanted to sell.
Data from FE Analytics shows the trust has produced consistent returns over one, three and five years. In the past 12 months to August 25, the vehicle delivered 19.1 per cent, in line with the AIC IT Infrastructure sector average return of 19.4 per cent. The trust lags its peer group slightly over five years, generating a 64.9 per cent return against the sector average of 70.4 per cent.
Mr Charlesworth confirms the two best-performing holdings were the two it sold earlier this year. “I wouldn’t say any one particular type of project has performed better than another and I wouldn’t say any one particular asset is a star performer against any other,” he says.
On the outlook for infrastructure, the manager believes there is a growing realisation among investors of the value of infrastructure as an asset class. But he acknowledges: “We’ve said for a while now the overseas market tends to be better value and hence our investment in Spain and the US this year. That’s partly due to the supply of projects in the UK, so PFI/PPP has been less used since 2012 for procurement and we’re seeing fewer projects coming off the construction phase into the secondary phase. We tend to buy in that secondary phase.
“There are a few funds reaching the end of their life and they’re disposing of their assets and that keeps the market going, but there’s not a huge supply in the UK.”
