Lonsec’s 2012 Infrastructure Securities Sector Review encompassed one Australian and six global infrastructure securities funds, as well as one hybrid infrastructure fund.
“Our increased conviction in management teams has resulted in two upgrades in this year’s review – the RARE Infrastructure Value Fund and Lazard Global Infrastructure Fund were both upgraded to Highly Recommended,” said Andrew Coutts, Senior Investment Analyst.
“This is the first time we have had two Highly Recommended funds in this sector since Lonsec commenced coverage of infrastructure securities funds in 2007.”
While the sector is still relatively immature, Lonsec has continued to gain conviction over time as managers have shown they can meet objectives over the market cycle while consistently investing to their style.
Sector observations
Listed infrastructure outperforms
With volatility being a dominant theme in global equity markets during 2011, the predictable cash flows, attractive yield profiles and more modest volatility offered by infrastructure securities were qualities that exerted significant pull for investors.
Over the year to 31 March 2012, both global and domestic infrastructure benchmarks fared considerably better than their broader equities counterparts, a trend which is also observable over the longer term. Despite short-term economic concerns, Lonsec continues to see long-term opportunities for listed infrastructure and believes its inclusion in a portfolio should improve its overall risk return profile.
Australian infrastructure companies feature prominently
Australian companies were popular in most portfolios, despite making up a minor portion of most global infrastructure indices.
“Australian listed electricity distribution company Spark Infrastructure was the most popular global infrastructure company, appearing in the top 10 holdings of four of the six global infrastructure funds we rated,” commented Coutts.
Other common Australian infrastructure companies appearing in global portfolios included Transurban, DUET Group, Sydney Airport and Asciano.
Emerging Markets Infrastructure
Investment in emerging markets infrastructure can be an effective way to access the growth story of emerging markets, while reducing the risks relative to broader EM equities due to the inherent defensive characteristics of infrastructure assets. However, accessing this growth potential also carries a number of additional risks.
While the peer group of infrastructure funds is relatively small, the managers within the peer group vary significantly in their approach to investment in emerging markets. Despite making up only a portion of portfolios for those with the largest allocation, this can serve as an important point of distinction when selecting an appropriate infrastructure manager.
6 July 2012
