Property & Infrastructure Funds Infrastructure as an Asset Class

Sigh, from a quick skim there's so much in this thread...

I'm going take this one statement from the conclusion in your last link @Nodrog

"Infrastructure sits somewhere between equities and fixed income in terms of both volatility and returns."

...and focus on equities instead..

Aside from the inflation indexed and long-duration aspects, another reason pension/super funds utilise vs reits might simply be to increase their investable universe? Just a random thought. I have no idea!

 

Infrastructure vs. Real Estate Investing — Zell/Lurie Real Estate Center

Tldr; fall in the general category of income producing real assets. Assets aren't new. Financial products to sell them are a more recent phenomenon.

Executive Summary
Infrastructure is developing into a mainstream long-term investment category with many commonalities with real estate investments, says Todd Briddell, President and CEO of CenterSquare Investment Management. Both infrastructure and real estate are long-duration assets that produce economic rent, provide diversification, and generate yield, Briddell said. According to Briddell, infrastructure investing is becoming more widespread. Over the prior three decades, infrastructure investment had been the domain of large pension funds and sovereign wealth funds that sought yield and inflation protection. However, similar investments are also available more broadly; for example, CenterSquare has identified several hundred publicly traded companies that share the characteristics of infrastructure investments. Adding to the investible universe, recently, infrastructure REITs have begun to go public; cell tower companies have elected REIT status; and master limited partnerships own pipeline assets in the United States. Overall, Briddell sees a convergence of real estate, infrastructure, and to a lesser extent, timber and agriculture, into an investment category of income-producing real assets.

 

With bond yields so low pension funds etc are looking for other long duration, relatively stable sources of income for liability matching.

Infrastructure likely delivers on that even more so than commercial property.

The larger funds tend to favour unlisted assets arguing that due to illiquidity they are much less volatile. This rightly or wrongly gives them an excuse to class these assets as “defensive”.

Other benefits include lower correlation to riskier assets which may smooth total returns.

For the retail investor apart from the potential correlation benefit, receiving a larger component of the return as a cash distribution appeals to some including retirees who don’t want to realise capital.

 

If the income is "defensive" (ie leases spread across customers, long dated and/or "sticky") and the asset owner doesn't need to sell then I suppose that's legit. I still feel I can get that with an index of Aussie shares and a nice cash buffer

 

There has been research reports suggesting Infrastructure does not have the attributes required for it to be deemed a separate asset class. Others argue the opposite. Vanguard however don’t appear to see it as anything special:

https://static.vgcontent.info/crp/i...guard_Research_Paper_2018.pdf?20190221|175812

Probably the main advantage I see from adding listed infrastructure is for those wanting higher relatively stable distributions. Some just don’t like selling assets for income. In particular it can provide desirable global exposure with higher yields than available from global equity funds albeit it concentrates risk when high weighting are held.

Alternatively those that do need to sell assets hope that the addition of less correlated asset classes like infrastructure might reduce capital drawdowns. Another layer of correlation benefit above bonds.

Trouble is when one starts overweighting these sectors (so called asset classes) you pay for it in higher fees.

The other risk is that due to the hunt for yield given where bonds are now this has been a huge tailwind for infrastructure. When bond yields eventually rise infrastructure may not perform so well? However there is disagreement on this.

I find it an interesting area though. Should Labor abolish franking credit refunds it could be a useful addition to retirees in particular portfolios given the income is generally unfranked.

 

Yes, fair enough too.

Asset allocation etc I think was invented for those nervy types who lie awake at night worrying about all the things that could happen but rarely ever do. Thornhill has never been troubled by any of this and has certainly done extremely well just holding ASX shares and cash.

I’m sure my wife thinks I’m crazy. She’d likely probably agree with Thornhill, invest where the income’s best and only worry about changing anything if ever the need arose. I unfortunately have a hungry brain which likes to read and think about such things just for the pleasure of doing so.

 

I hold two infstructure funds. Lazard and Magellan infrastructure funds. Probably like them for the same reason I’m so heavy in property trusts. I like the idea of a strong dividend paying fund regardless of the share price movements.

Both the funds I hold seem to be doing reasonably well being active funds compared to the infrastructure index. I think infrastructure similar to property trusts are better being actively managed than just going for the general index.

 

Magallen tends to hold concentrated portfolios. In the following case 30 stocks vs 151 in the index. That comes with the potential for higher reward but at higher risk.

Here’s the performance comparison. The index Fund wins in recent years but active had a better run beyond that. Listed infrastructure is a relatively new asset class with limited competition until recent times. With much increased popularity in recent years and greater Mgr competition outperforming will get harder. Skill vs luck, only the future can tell.

Both funds are hedged:

 

Couldn't help but laugh at this given some of comments you have made about yourself as a worrying type.

Made my morning so thanks.

 

Your welcome, I think?

Given this is an Infrastructure thread of course there’s ARGO’s ALI. Off I go now to see if ALI has beaten the index.

 

Awesome. Good others are doing the work.

Off to fuel up the beast and get some peoples to their medical appointments. Not everyone has it easy. And one day it could be me!

 

Ok here we go, ALI performance vs the Index (as at 31-Dec-18). Note that except for a small allocation to EM (All World) this is the same index, but unhedged, use by IFRA ETF (Developed). IFRA also generally has a higher yield than ALI. Perhaps in part due to ALI’s higher fee of 1.20% vs 0.52% for IFRA?



The share price benchmark has been compared against the FTSE Global Core Infrastructure 50/50 Index. The NTA has been compared against the FTSE Global Core Infrastructure 50/50 Index.
https://cuffelinks.com.au/wp-content/uploads/Bell-Potter-LIC-December-2018.pdf (P61)

IFRA product info for those interested:
IFRA - VanEck Vectors FTSE Global Infrastructure (Hedged) ETF | Infrastructure ETF

But the good news is that us holders of ARG get the benefit of ARGO receiving half that fee from memory.