Monday, 8 April 2013

Infrastructure Investing

Here at Fundgurus we've discussed various investment themes and this latest article looks at Infrastructure as an investment theme.

'Infrastructure' is a broad term and I generally think of it encompassing areas such as utilities, transport (airports, railways, roads) and schools and hospitals. Infrastructure investment is something that is always required, whether it be to initially install the facility, or to improve or update existing infrastructure.

Often infrastructure is heavily supported by public spending and government policy. By investing in high-speed railways for example, governments can make their country more attractive to businesses and investment which helps support the economy. At the same time it creates jobs in the immediate term to actually build the infrastructure. With governments looking to stimulate economies there is a possibility we will see them target infrastructure directly, and we have actually seen the beginnings of this with Japan and U.S. policy.

Infrastructure can also provide an inflation-hedge. Real assets such as buildings have exhibited inflation protection in the past. Revenues, such as those from toll roads, are often linked to RPI and therefore also offer inflation protection.

For investors there are various funds and stocks available to invest in this infrastructure theme. HICL Infrastructure is a closed ended investment trusts (HICL) and has an attractive yield (c. 5.7%). First State Global Listed Infrastructure is an open ended fund investing in companies that are linked to the inflation theme. This provides a more global portfolio, but has tended to exhibit slightly more volatility then HICL.

This type of investment can produce steady returns making an attractive addition for portfolios for the long term investor.

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