While big institutional investors such as superannuation funds have long recognised the benefits of infrastructure as an investment option, retail investors often don’t believe they can readily access infrastructure projects without millions of dollars to invest – but this isn’t the case, says Sarah Shaw, CIO at 4D Infrastructure.
“It is possible to invest in infrastructure through direct shares or a managed fund, giving investors access to the advantages that this asset class offers, including a very attractive risk return profile with strong growth upside.
“In fact, investing in listed infrastructure may be a better option for retail investors than an unlisted direct exposure.
“Investing in listed infrastructure gives access to the same underlying asset profile as an indirect or unlisted exposure, while the main differences are in how an investor owns that asset profile, or how they gain exposure to the fundamental assets,” she says.
Both listed and unlisted infrastructure investments offer exposure to the same type of fundamental assets – if not the same actual assets – exhibiting all the valued defensive characteristics of the infrastructure asset class.
“Furthermore, both listed and unlisted investing employ the same valuation techniques, and there is regular movement of assets between the listed and unlisted space,” Ms Shaw says.
The main differences between investing in listed and unlisted infrastructure options are largely to do with how investors gain exposure to the fundamental assets.
Investors in listed investments, rather than unlisted, generally benefit from:
Ms Shaw says active management in a benchmark agnostic fashion is particularly important when investing in infrastructure.
“Active management of any infrastructure exposure is key in order to allow investors to gain exposure to the underlying demand/growth story.
“In addition, as infrastructure offers two macro diverse sub-sectors (utilities and user pay assets), an infrastructure portfolio can be positioned for all points of a macro cycle if properly actively managed.
“Utilities meet basic needs and are largely immune to macro cycles, making them an attractive defensive, resilient asset class in depressed markets.
“By contrast, User Pay assets (toll roads, airports, ports and rail) are positively correlated to macro growth and represent a very attractive investment proposition in buoyant macro environments.
“Active management of these two infrastructure sub-sectors aims to smooth the volatility of the investment, again comparing favourably to a general index or ETF (that generally favours cyclicals) or direct shareholdings which have concentration risk.
“Being benchmark agnostic is another important consideration even within the infrastructure space. This supports true active management and will see investment in the best opportunities globally, regardless of any benchmark weightings,” she said.
4D Infrastructure is a boutique asset manager investing in listed infrastructure companies, globally. 4D aims to identify quality infrastructure companies, trading at or below fair value with sustainable, growing earnings combined with sustainable, growing dividends. The Fund is index agnostic as 4D look for the best opportunities globally in regions including North America, Europe, developed Asia and emerging markets.