Lonsec says global infrastructure securities sector will continue to grow
Lower volatility on global infrastructure securities.
Investment research house Lonsec Research (Lonsec) said global infrastructure securities has delivered equity like returns with lower volatility over recent years, and global investor demand for yield saw the sector outperform the majority of major asset classes over the year to March 2013.
The Lonsec Infrastructure Securities Sector Review, which covered nine infrastructure securities funds, found the sector has recovered from the losses experienced during the global financial crisis, with the majority of funds providing solid single digit returns over the five years to March 2013.
Andrew Coutts, Senior Investment Analyst, Lonsec said the global macroeconomic environment was a key factor contributing to the recent performance of infrastructure securities funds.
“Over the past year, the sector has been the beneficiary of investor preference for yield and defensive equities in the face of wider economic uncertainty.”
“Fund managers also have an optimistic outlook for the sector – demand for the services are expected to remain steady and global structural drivers such as urbanisation, globalisation of trade, mobilisation of data and security of energy supplies are expected to underwrite future growth,” Mr Coutts said.
“However, fund managers remain divided over the investment prospects in emerging markets, as favourable economic and demographic trends are weighed up against the risk / return trade off. While emerging markets infrastructure is attractive because of its role in supporting these growing economies, the idiosyncratic nature of emerging markets means there is also elevated risk.”
These risks include regulatory and political risk, along with corporate governance, market transparency, liquidity and trading costs.
Despite being a small proportion of global market benchmarks, Australian stocks feature prominently in infrastructure portfolios, highlighting the relative maturity of the local listed infrastructure market, the high asset quality held by listed vehicles and the established regulatory processes.
While the sector has enjoyed a rapid rise in popularity since the initial launch of funds in 2006, flows in 2012 were relatively flat, reflecting the wider trend of muted investor demand for equities.
The Lonsec review also found relatively wide performance dispersion between fund managers over the past year due to the ‘benchmark unaware’ approach to portfolio construction and differences in investment styles, although performance over the longer term has generally converged.
“The benchmark unaware approach and lack of a widely accepted market proxy makes relative performance difficult to measure, but the trend of long term outperformance of major sector indices indicates investors have been rewarded for active management within the infrastructure sector,” Mr Coutts said.