The inclusion of listed international infrastructure securities in a portfolio should improve its overall risk and return profile due to the positive outlook for the sector, according to Zenith Investment Partners.
“The economic outlook over the short to medium term appears highly uncertain, however, the medium to long-term outlook for the listed infrastructure sector is reasonably positive,” Zenith senior investment analyst Bronwen Moncrieff said in the firm’s recent infrastructure sector review.
Growth of the sector would be driven by increasing demand for infrastructure assets globally, the rapid economic development and urbanisation in emerging markets and increased privatisation of infrastructure services.
“An additional theme with long-term positive implications for the infrastructure sector is the continued global demand for infrastructure assets, particularly in emerging markets,” Moncrieff said.
“While the expected growth rates in emerging market countries have generally been revised downwards, growth rates in emerging markets are, on average, expected to be higher than that for the developed world.”
Lonsec said in its 2011 infrastructure review that most managers agreed there were long-term trends in emerging markets that were favourable for infrastructure.
“These economies have undergone significant development in recent years, with a combination of economic and demographic trends, such as population growth and increased urbanisation, expected to lead to increased demand for infrastructure,” Lonsec investment analyst Andrew Coutts said.
“Those funds with an OECD (Organisation for Economic Co-operation and Development) focus are likely to provide less volatile returns and provide greater defensive qualities in falling markets.
“In considering non-OECD infrastructure exposure, investors should be aware that they may be gaining meaningful exposure to emerging markets through their broader global equities allocation.”
Zenith’s review found that on a hedged return basis, listed infrastructure had consistently outperformed global equities over the long term.
This is due to characteristics of the asset class, including a significant degree of regulation, monopolistic operations and inflation-linked cash flows.
