How infrastructure helps growth or income investors

Fast forward to 11 years later and HICL has enjoyed enormous growth, reaching some £2.5bn in assets.

In recent years infrastructure as an investible asset class has entered the mainstream in a highly visible way.

Since HICL’s humble beginnings, the Association of Investment Companies’ (AIC) Sector Specialist: Infrastructure peer group has become one of the trade body’s largest cohorts, consisting of seven funds with total assets of nearly £9bn at the end of April this year.

The pace of growth witnessed in recent years does not seem to be abating, either: in the first four months of 2017 alone, the sector raised nearly £800m.

This comes at a time of significant appetite for investment vehicles more broadly. According to the Investment Association, the first half of this year broke a record for fund sales, as UK retail investors placed a net £18.4bn into portfolios.

The figures mark the highest level of net sales for the opening six months of any year, and a recovery from a previous down period. For the whole of 2016, which proved to be a miserable time for many asset managers in terms of attracting new business, net retail inflows amounted to just £4.9bn.

Infrastructure has been among the specialist areas to draw the attention of investors.

However, some of the possible drivers behind 2017’s sales help to explain the continued attraction of infrastructure investments, and why investors are increasingly turning to this asset class.

Global economic growth has continued to tick along this year. Meanwhile markets have powered ahead, appearing relatively untroubled by the geopolitical concerns of recent months.

For those holding traditional assets, this appears to spell good news. Mainstream developed markets, such as the FTSE 100 and S&P 500, have broken a number of fresh highs this year as the indices have risen steadily.

Other geographies – such as emerging markets - have delivered even stronger gains. While the MSCI World index has improved by 6.7 per cent in value year to date, the MSCI Emerging Markets benchmark has risen by nearly 17 per cent.

Potential dilemmas

But such gains create a dilemma for intermediaries and their clients. High prices on assets suggest that future returns could be limited, restricting the performance potential for investments.

More worryingly, frothy valuations leave investors more exposed to a steep market fall and the resulting losses.

Investment specialists are not blind to this. In July, the proportion of fund managers who viewed equities as overvalued reached a new record high, according to research by Bank of America Merrill Lynch.