This helps to mitigate many of the risks we have outlined and to ensure that investments in this area continue to act as stabilisers within a multi-asset portfolio, smoothing the future total return achieved.
Fortunately, there are now many opportunities for investors to access expertly managed global infrastructure funds and this is a truly international asset class.
As an illustration, the fund we use most commonly holds assets in the US, Canada, Germany, Norway, New Zealand, Ireland and Australia.
Other popular funds extend across Europe to Italy, Spain, France, Portugal and as far as Hong Kong,
Investing in infrastructure in practice
At James Hambro and Partners we currently favour a mix of both open-ended and closed-ended structures.
We have a distinct international bias within all our favoured infrastructure funds and a particular leaning towards North American markets, where deal flow has been greater in recent years.
One of the funds on our list offers debt financing to infrastructure projects. It owns the debt that finances the asset and with very good loan-to-value ratios.
This currently trades on a premium of 7 per cent, which is relatively attractive at the moment.
Underlying asset exposure includes transport and health assets, renewable energy projects and economic infrastructure debt, all of which combine to provide attractive income yields ranging from 4-6 per cent and the potential for future capital growth.
On average infrastructure represents 3.5 - 4 per cent of client portfolios, underlining the fact that this should be just one element within well-balanced multi-asset portfolios.
Looking ahead
Spending guidance from authorities worldwide reflects the importance of infrastructure assets in improving everyday life.
It also reflects their historical ability to boost economies.
As we emerge from the pandemic, the drive to “Build Back Better” may present many more attractive opportunities around the world to access this asset class.
But investments need to be chosen carefully and with an eye on valuations. Get it right and these investments can play a positive role within portfolios.
Aidan Butler is a Partner and Portfolio Manager at James Hambro & Partners
