Listed Infrastructure still adding value, but requires an active approach going forward, says Zenith
Sophie Gibbons
Outsized returns from a passive Listed Infrastructure approach will be harder to come by in the current markets, according to Zenith Investment Partners latest Listed Infrastructure Sector review.
Sophie Gibbons, Zenith Senior Investment Analyst, said “In the 12 months to 30 April 2016, the Infrastructure sector as measured by the S&P Global Infrastructure Index $A (Hdg), produced a relatively subdued outcome when assessed in a historical context”.
A period of heightened market volatility also contributed to the sector’s increased bifurcation with a 23.8% return differential occurring between the best and worst performing rated funds. Given the macroeconomic headwinds facing the sector, issues with benchmark composition, and the increased sensitivity of mid-stream assets to commodity prices, a blanket approach to the sector could be problematic.
However, the considerable outperformance of some managers indicates there are still ample opportunities for investors to generate favourable outcomes.
In light of the market’s recent turmoil, Zenith’s Listed Infrastructure sector Review has sought to reassess whether the asset class can continue to retain its more defensive characteristics. To aid with this assessment, the research house has established a set of criteria against which the performance of the asset class may be measured and concludes that Listed Infrastructure continues to retain a core set of characteristics; namely lower volatility and correlation to equities, with relatively high levels of liquidity.
Zenith concludes with a discussion on credit analysis. “We argue that infrastructure analysts need to subject corporates to a higher level of debt analysis, given the importance of debt in funding operations. We stipulate that deep dive solvency analysis can aid analysts in gaining a more informed view on a corporate’s financial position, a factor that is of increased relevance amidst times of credit market stress”, said Sophie Gibbons.
Summary of the Zenith 2016 International Shares – Listed Infrastructure Sector Review
From an initial universe of 18 infrastructure funds:
- 4 were rated “Highly Recommended”
- 9 were rated “Recommended”
- 1 was rated “Approved”
- 4 were “Not Rated”
