The Lonsec Infrastructure Securities Sector Review rated 15 funds, including 10 actively managed global infrastructure securities funds, one emerging markets fund, one Australia-only fund, two multi-manager products and one hybrid global infrastructure fund.
The report indicated that while global infrastructure stocks lagged behind broader equities in 2013, the sector has performed strongly early this year as investors shifted to less risky securities in the face of mixed US economic data and expectations that interest rates would remain lower for longer.
“While managers concede that certain subsectors are at rich valuations, they remain positive on the prospect for continued solid returns from the sector,” said the report.
“Growth is expected to continue to be underpinned by resilient demand for services and longer term structural drivers such as urbanisation, globalisation of trade, mobilisation of data and securitisation of energy supplies,” it said.
Lonsec senior investment analyst Andrew Coutts said interest rate risk affects the infrastructure sector as many assets are backed by high levels of debt finance.
“Infrastructure assets tend to be unique, with each offering a different risk-return profile in sectors varying from airports and roads to utilities and communications,” said Mr Coutts.
“By investing in companies across subsectors, investors can diversify this risk,” he said.
Lonsec also said infrastructure is a strong asset class to help investors achieve portfolio diversification, offering reasonable levels of long-term growth with higher yields than equity.
“Infrastructure is appealing as it is expected to deliver an attractive yield and provide a relatively strong return at lower risk than equities and global property,” Mr Coutts said.
“However, considering the correlation with broader equities of the sector, Lonsec considers infrastructure a growth asset and recommends inclusion within the balanced and growth options within a strategic asset allocation framework.”
