According to Nick Langley, co-chief executive and co-chief investment officer at RARE Infrastructure, a Legg Mason affiliate, there are opportunities in high-yielding infrastructure securities across both the developing and the developed world.
He says within the income universe from which the team selects stocks for the Legg Mason IF RARE Global Infrastructure Income Fund, the 5 per cent yield of the fund comes from four main areas.
These are:
- North America – contracted or regulated pipelines, as well as vehicles holding long-term contracted renewable assets.
- Asia-Pacific Developed – regulated electric and gas utilities.
- Europe – Regulated utilities in periphery countries.
- Emerging Markets – regulated utility assets, specifically Brazilian transmission.
For Andy Ho, chief investment officer at VinaCapital, emerging markets are potentially higher yielding than the UK.
Speaking of the growth of infrastructure in Vietnam, he comments: “We see many yield opportunities in the infrastructure sector.
“Not only have many infrastructure stocks offered cash dividends for 2017, but the average dividend yield looks decent at 7.3 per cent, compared with the Vietnam index yield of 3 per cent.”
Note of caution
While the dividends look attractive in the context of globally constrained yields on fixed income and cash, it is also important to understand the effect these higher yields in infrastructure might have on pricing, and how reflective these might be of the risks inherent in a certain asset.
According to Collins Roth, managing director at MPC Industrial Projects: “An established, operating infrastructure project should provide a predictable, long-term yield.
“But the absolute amount of that yield will vary drastically depending on the underlying risk, with local and national credit ratings presenting the base return, and then premiums for things such as market risk, execution risk, management risk and renewal risk.”
Mr Leyland also cautions: “We are currently in an environment where it is difficult to find income so investors must be aware some infrastructure product can attract premiums for that higher yield.”
Simoney Kyriakou is content plus editor for FTAdviser
