Infrastructure funds proved their worth during the global equity market sell-off in the December quarter last year, playing their role as high-yielding and defensive equity investments, according to new research.
Zenith Investment Partners says that while global listed infrastructure funds invest in listed assets, they offer investors ‘drawdown protection’. This is because of the characteristics of the companies they invest in, which include stable income, high barriers to entry and monopoly market positions.
The global equity benchmark, the MSCI World ex-Australia AUD Hedged Index, fell 13.6 per cent in the December quarter, while the infrastructure benchmark, the FTSE Global Core Infrastructure 50/50 Index, fell just 2.1 per cent.
The infrastructure sector participated in the equity market recovery in the March quarter, when the MSCI Index rose 12.5 per cent and the FTSE Infrastructure Index rose 12.7 per cent.
In its latest report on the global listed infrastructure fund sector, Zenith has given ‘highly recommended’ ratings to four funds: Magellan Infrastructure Fund; Magellan Infrastructure Fund (unhedged); Maple-Brown Abbott Global Listed Infrastructure Fund; and Maple-Brown Abbott Global Listed Infrastructure Fund (Hedged).
The Magellan infrastructure portfolio includes airport operators Aena SME SA and Aeroports De Paris, toll road companies Atlas Arteria and Transurban and a number of energy and gas utilities.
The Maple-Brown Abbott fund has 31 stocks in the portfolio, including a Canadian electricity company Hydro One, Brazilian energy company Energias do Brasil and Californian utility PG&E. It holds some UK regulated utilities, which have suffered share price weakness in the wake of the protracted Brexit debate.
Zenith’s ‘recommended’ funds include offerings from AMP, Colonial First State, Lazard, Macquarie (two funds), RARE (four funds) and UBS.
Looking at the fall in equities in the December quarter last year, Zenith says returns generated by different infrastructure sectors varied greatly. Airports were the worst performers, falling 10.6 per cent in the quarter.
Toll roads, electricity and telecommunications networks all generated positive returns, against the trend of the overall equities market.
All infrastructure sectors participated in the global equity market rally in the March quarter.
Zenith’s universe of 15 rated global listed infrastructure funds underperformed the FTSE infrastructure index by around 1 per cent over the 12 months to the end of April. Zenith said this was due to stock-specific events over the past year.
The collapse of the Genoa bridge in Italy had a negative impact on the share price of its owner Atlantia SpA. And the shares of US energy company Pacific Gas & Electric were hit hard in response to California’s wildfires.
Zenith says: “One of the common features of most of our rated infrastructure managers is their relatively high levels of portfolio concentration. While Zenith is broadly comfortable with the concept of concentrated portfolios in active management, obvious high conviction approaches can lead to greater performance divergence across funds, as well as elevating the impact of stock specific events.
“Despite the impact of these specific events, Zenith believes that our rated global listed infrastructure funds have continued to show evidence of their ability to provide a level of protection when general equities experience sharp drawdowns.”