Infrastructure proves sound investment
Sep 29 2008 by Christine Hawdon, The Journal
STOCK Market volatility has prompted investors to look for alternative assets in order to diversify their portfolios. Thematic investments, such as infrastructure, have become very popular.
Billions of people around the world rely on infrastructure to go about their daily lives. Infrastructure is far ranging and includes airports, tunnels, utilities, hospitals and schools. It affects us all, from the roads we travel on, to the water we drink.
Gaining exposure to the infrastructure sector can be achieved through a number of routes, including collective investments, direct equities or Exchange Traded Funds (ETFs) which track the infrastructure index.
Collective investment funds offer diversification with lower risk. The HSBC Infrastructure Company is a UK listed investment trust. The fund was launched in March 2006 with 15 holdings of Private Finance Initiative (PFI) and Public Private Partnerships (PPP) including mature local projects such as North Tyneside and Darlington schools as well as the Bishop Auckland hospital.
The portfolio has grown strongly and now consists of 27 fully operational infrastructure assets across the UK and Europe, most with long-term leases ranging from 20 to 60 years. The fund is priced at around 117p with an income yield in excess of 5%.
For investors seeking exposure to global infrastructure projects, First State Investments runs a Global Listed Infrastructure Fund.
The fund was launched in October 2007 and currently has 42 holdings of listed infrastructure and infrastructure related securities which are diversified across the globe. Its assets range from toll roads to airports as well as ports and utilities.
As an alternative, WS Atkins is an infrastructure consultancy business which is involved in the planning, design and enabling of complex capital projects. The company has geographic diversity and is the largest engineering consultancy business in the UK, with growing exposure in Europe and the Middle East.
The group provides many services, including architecture, project management, management consultancy, environmental services and facilities management. Around 75% of its revenues come from public and regulated markets such as utilities which should provide some resilience in a cyclical downturn. The share price stands at around 844p with a yield of 2.8%.
Balfour Beatty is another company with links to the infrastructure sector. It operates a building related division which focuses on the design, construction, equipping, maintenance and management of buildings. It also operates an investment and development section which focuses on PFI and PPP infrastructure projects and developments. The share price currently trades at around 326p with a yield of 3.5%.
Last year the Organisation for Economic Cooperation Development (OECD) predicted that around $50trillion of investment is needed across the 30 OECD countries by 2030 to build or update infrastructure. The emerging economies also need to invest heavily across the board in transport, housing, schooling and utilities. So despite the economic slowdown, the appetite for infrastructure assets is likely to remain buoyant.
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