William Argent of Gravis Capital Management, fund adviser to the VT UK Infrastructure Income fund, agrees the relatively low-risk nature of the typical social infrastructure project has resulted in stable asset valuations, with investors experiencing low volatility in the value of their capital.
“These characteristics are attractive to investors and for many the asset class is viewed as an alternative to investing in the debt markets in the prevailing environment of very low interest rates."
Recurring dividends
Income is usually high up a client’s list of priorities when it comes to reasons for investing, particularly if they are planning for retirement.
More often than not, UK investors rely on dividends, so often may invest in an equity income fund, for this element of their portfolio.
But infrastructure has a good track record of generating income, at a time when traditional sources such as fixed income are not generating decent yields.
Mr Burniston believes: “In an environment of ultra-low bond yields, compressed and highly-valued property rents, the type of income produced by infrastructure has been extremely popular.”
According to Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC), the AIC Sector Specialist: Infrastructure sector is also a popular sector among income-seeking investors.
“With the sector having a dividend yield of almost 5 per cent, it’s not hard to see why,” she adds.
As Mr Langley notes, not only does it provide an income stream but the dividends paid out by infrastructure should be growing and recurring over time.
One of the other main advantages of the asset class is its ability to act as a diversifier in portfolios as it has a lower correlation to other assets, including equities and bonds.
He explains: “This is a result of the underlying return streams of infrastructure companies being strongly linked to the regulatory or contractual frameworks in place, rather than typical drivers of equity and bond returns.
“More importantly, we frequently see this diversification benefit increase in times of market stress, meaning that infrastructure provides protection through diversification exactly when it is needed the most.”
As such, an infrastructure holding, whether it’s an investment trust or open-ended fund, can be an attribute to a portfolio of wider investments.
“The drivers of infrastructure earnings tend to be structural rather than cyclical,” Mr Meany acknowledges. “This enables them to generate resilient and growing earnings streams and makes them relatively immune to economic cycles."
Mr Meany adds: "For example, mobile towers are benefiting from growth in demand for mobile data and the resulting need for telecom operators to upgrade and infill their networks.
"The North American shale energy revolution has driven the need for new oil and gas pipeline networks, as well as storage and export infrastructure.
