BLOG: Ignore infrastructure investing at your peril
Several factors make the infrastructure sector an attractive long-term investment
Infrastructure is all around us; roads, railways, airports, water, gas, electricity, oil and gas pipelines, telecom towers and satellites. It is essential to our everyday lives and, therefore, economic activity.
It should also be attractive to investors given it is a structural growth story, which goes beyond any political rhetoric: infrastructure will always need to be built and renewed. It’s also a sector with exposure to essential services with strong pricing power, high barriers to entry and steady cashflows. That is what makes it an attractive long-term investment.
Infrastructure has traditionally been the domain of the private institutions rather than the person on the street. But that has changed in the past decade, as investors have sought to invest beyond bonds and equities for a strong and consistent income in a low interest rate world.
Changing image of the sector
The face of infrastructure is also changing, particularly in the developed world.
Until the late 1980s it was dominated by the public sector. However, the private sector’s influence has grown exponentially since then, as governments across the globe do not have the budget to fund future projects -effectively there is a preference for private companies to carry the risk.
It’s important to recognise in this scenario that while they may not be owned, certain types of infrastructure such as hospitals or solar energy (renewables), have been heavily supported by both the UK and other governments globally.
The rise of listed infrastructure companies
The rise of listed infrastructure companies has opened the door to retail investors – these are effectively publicly-listed companies which own or operate a type of infrastructure asset.
In addition to improved access for retail investors, they are also designed to offer higher yields and lower volatility when compared to global equities. By contrast, physical infrastructure funds, tend to buy direct stakes in infrastructure assets and can often have a say in their operational management.
A bright future for the sector
I believe this is a sector which is destined to grow across the globe as emerging nations look to build, while developing nations renew what they already have. It offers a nice mix of defensive positioning and a consistent yield.
We are also seeing more listed infrastructure funds and companies coming into the market, which should mean more opportunities and lower fees for investors.
Those looking to invest may like to consider the First State Global Listed Infrastructure fund. Managed by Peter Meany and Andrew Greenup, this is a highly concentrated fund of around 40 companies.
As the name suggests, the fund does not invest directly in infrastructure projects, but just the listed companies that operate in the infrastructure sector. These include the likes of utilities, roads, train lines, air and marine ports. The fund has a current yield of around 3%.
Another option is the VT Gravis UK Infrastructure Income fund, which invests mainly in investment trusts exposed to different types of UK infrastructure. The fund has an income target of 5%, which is distributed quarterly, and it can invest in both infrastructure debt and equities. It has a minimum of 22 holdings but will have exposure to around 1,000 separate underlying projects.
Darius McDermott is managing director of Chelsea Financial Services and FundCalibre