Listed Infrastructure delivers during recent downturns


Dugald Higgins

Global Listed Infrastructure (GLI) funds have once again proved their defensive capabilities in the face of equity market volatility according to Zenith Investment Partners 2019 Infrastructure Sector Report.

The sector delivered solid absolute performance for the year ended 30 April 2019, with the FTSE Global Core Infrastructure 50/50 $A (Hedged) Index returning 14.8%.

Zenith’s Head of Property & Listed Strategies, Dugald Higgins credited the stable income, high barriers to entry and monopolistic positioning of quality infrastructure companies as the key reasons for the sectors solid performance.

The period was also one of mixed blessings for GLI funds, with many of the sector’s fund managers experiencing material risk events during the year.

This was largely due to the impact of two major catastrophic events that affected specific companies in the marketplace – the Genoa bridge collapse in Italy, and the Californian wildfires in the U.S. In the weeks that followed, the fallout from these tragic and unforeseeable events severely impacted the share prices of the companies involved.

“Due to the relatively concentrated portfolios of many of the funds, many were impacted by these events,” noted Higgins.

While Zenith is broadly comfortable with the concept of concentrated portfolios in active management, higher conviction approaches can lead to greater performance divergence across funds in the short-term, as well as elevating the impact of stock specific events.

Higgins added that, “these events act as a reminder of the stock specific risk inherent to infrastructure portfolios and the significant impact they can have on performance in the short-term.”

GLI funds help cushion returns in a volatile global equity market

At the end of 2018, global stocks suffered their worst quarterly fall since September 1998, with the MSCI World ex Aust $A (Hedged) falling -13.60% for the quarter, driven by persistent worries over trade and economic growth.

During the same period however, GLI funds continued to show evidence of their ability to provide a level of protection. Over the December 2018 quarter, Zenith’s rated GLI funds returned an average of -2.26%.

Higgins believes that this performance differential reinforces the message that whilst GLI invests in listed assets, the asset class offers investors greater drawdown protection relative to broader global equities.

He also pointed out that over the three years ending 30 April 2019, hedged GLI funds delivered outcomes in line with expectations, demonstrating defensive qualities with both lower volatility, and lower equity beta, when compared with global equities.

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