Caution required on global listed infrastructure strategies
Global listed infrastructure strategies can help to diversify an investment portfolio, but investors need to maintain a total return perspective, Morningstar's latest sector review has found.
Investors need to move away from income generating ability when considering strategies in this sector, particularly as falls in the Australian dollar can temporarily lower or even halt distributions entirely for many hedged strategies.
"Given the sector's inherent risks, any allocation should come from either an existing global equities or listed property exposure," Morningstar stated.
Over the period from 2008 to mid-2012, most infrastructure strategies produced relatively defensive returns compared to other equities.
Given the demand and revenue characteristics of infrastructure assets, this should "broadly insulate them amid carrying economic conditions" and stave off any volatility in returns, according to the review.
In addition, many types of infrastructure companies are relatively well-equipped - when compared to equity strategies - to handle rising inflationary pressures thanks to their "inelastic demand and inflation-linked revenues", according to the report.
"Global listed infrastructure fund managers continue to disagree over what constitutes an appropriate benchmark," it said.
"None of the available indices is a perfect fit, but we believe that a market index is much more appropriate than an inflation-based hurdle, especially when a manager also levies a performance fee."
As part of the Morningstar Analyst Rating, Magellan Infrastructure and RARE Infrastructure Value were both awarded silver, while Colonial First State Global Listed Infrastructure and Vanguard Global Infrastructure were awarded bronze.
Recommended for you
Clime Investment Management has faced shareholder backlash around “unsatisfactory” financial results and is enacting cost reductions to return the business to profitability by Q1 2025.
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
