Can infrastructure provide shelter from the viral storm?
Dan Cave
Despite the market falls in March 2020, the Global Listed Infrastructure (GLI) sector has continued to deliver on its attractive return attributes for the 12 months to 31 March 2020, with the sector outperforming global equities with lower volatility.
In its 2020 Infrastructure Sector Report, Zenith Investment Partners contends that investors can benefit from a GLI allocation in a diversified portfolio. This is due to its unique return profile that typically provides equity-like returns with lower volatility, which can be largely attributed to the attractive and stable yields.
For Dan Cave, Senior Investment Analyst at Zenith, the GLI sector, although not immune to listed market volatility, typically provides a greater level of downside protection when compared to broader global equity indices as it has less exposure to short-term business conditions, competition, economic conditions and commodity prices than broader industrial equities.
“Obviously, absolute returns for the period have been impacted, with the median manager across our rated GLI funds delivering -9.25% (after fees). However, they outperformed Global equities, which produced a return of -11.11% for the same period,” said Cave.
In the most recent market turmoil, Cave acknowledges that GLI has broadly performed in line with global equities, providing only marginal downside protection. “A large contributor to GLI’s negative returns has been the transport-related segments of the infrastructure market (airports and toll roads), which have been some of the hardest hit due to large falls in patronage levels. In contrast regulated utilities have outperformed global equities as their regulated earnings are more resilient due to their essential role in society, especially in a COVID-19 shutdown”.
“Despite so much uncertainty surrounding COVID-19’s impact on global markets and the real economy, Zenith believes GLI still has a strong role to play in an investor’s portfolio. This is due to the sector’s stable earnings profile, especially in a recessionary environment. While not all segments have performed in a defensive manner in the recent market drawdown, we believe an allocation to GLI provides diversification benefits to investors through the cycle due to its inherent defensiveness relative to equities.”
