Hybrid infrastructure funds may provide downside protection
Investment in a hybrid of listed and unlisted infrastructure can provide portfolios with downside protection, according to AMP Capital Investors head of research - infrastructure, Greg Maclean.
Speaking at the Portfolio Construction Conference, Maclean said in the current climate of uncertainty, investors would look to their advisers to provide a wider variety of approaches to help steer them through the fog.
"Listed equities tend to have a high level of geographical correlation", Maclean told an audience of financial services practitioners at the conference session. While growth rates are able to diverge when markets are on the up, in a period of downturn, on the other hand, rates of change and correlation tend to move closer together.
Maclean cautioned advisers that downside protection can be difficult to achieve. He said even holding equities from a range of different countries would be inefficient at providing downside protection in this case.
An alternative strategy of diversification by sector may prove more effective, Maclean suggested, and infrastructure stocks tend to show lower correlations with the market than other sectors. Listed infrastructure offers diversity within it own asset class, consisting of utilities, transport, communications networks, and social infrastructure.
Unlisted property - another potential asset class - is not usually available to retail investors. But one of AMP's funds is being marketed as a means to gain limited access to these unlisted infrastructure assets. These assets are illiquid, and are valued periodically on a 'fair value' basis to determine the price at which a sale could go through between a willing seller and a willing buyer.
Maclean said this method of valuation is more aligned to underlying economic considerations than listed markets, which makes them less volatile.
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