In a recent report, Intensifying Competition in Global Infrastructure, Morningstar said that as a result of an influx of assets into global listed infrastructure, it is becoming more difficult for investors to find value and outperform competitors.
“Larger amounts of capital chasing the same pool of assets should encourage more research on the sector, potentially diminishing opportunities to find meaningfully priced securities,” said report author and Morningstar senior analyst Tim Wong.
“Active managers should consequently find it harder to outdo their cohort.”
Mr Wong argued that another way to see the effect of competition is to analyse whether investment strategies are becoming similar over time.
The report found that the average holdings of global listed infrastructure funds have started to increasingly overlap. In 2007, approximately 16 per cent of average holdings overlapped, while in 2015 the figure came in at 27 per cent.
“The existence of increasingly similar portfolios also tallies with anecdotal evidence of a rising overlap in industries deemed investable,” Mr Wong said.
According to Mr Wong, while there has been an up-tick in the overlap of average holdings, the numbers are still relatively small.
“An overlap of 27 per cent is not that high; put another way, the average difference is about 73 per cent.”
Mr Wong said differences in sector, industry, and regional weightings are still common.
“So while there is growing evidence that portfolios are becoming somewhat more similar, understanding each vehicle’s particular characteristics remains crucial to ensuring that it suits [investors’] needs,” he said.
