03 March 2020
Infrastructure continues to be an important component in investor portfolios due to its potential to deliver stable long-term returns. The asset class represents an appealing investment option, as it offers low correlation to traditional asset classes, monopolistic-like structures and long-duration projects with defensive characteristics, which can help investors limit drawdowns during market corrections.
These attributes provide investors with a number of potential benefits, including portfolio diversification, income stability and inflation protection.
These characteristics stem from the fact that infrastructure investments are long-lived, capital-intensive projects. Once built, infrastructure assets tend to have low operating and maintenance costs and exhibit economies of scale until capacity is reached.
Unfortunately, for most investors, gaining access to infrastructure investments tends to be challenging, as direct investments in projects usually require large initial investments and have long lock-up periods. Moreover, some of the more accessible vehicles still have meaningful downsides. Investment in closed-ended funds present an issue, given they can trade at large premiums or discounts for extended periods of time. And mutual funds tend to be pure equity portfolios, meaning they do not offer the same level of de-correlation to traditional markets that makes the exposure so attractive.
The SPDR Morningstar Multi-Asset Global Infrastructure UCITS ETF provides a liquid way to invest in the asset class, while also offering a closer risk/return profile to pure infrastructure investments.The ETF does this by following an index that invests in both equity and fixed income Infrastructure securities. This approach allows the index to participate in both the upside, through equity capital growth, while also providing protection from falling markets, along with a predictable level of income, through the fixed income sleeve.
Looking at the charts below, we can see that the index historically has shown a far closer performance profile over time to HICL Infrastructure PLC (one of the best known Infrastructure closed-ended funds) than either the equity infrastructure index or traditional asset classes. The returns have also been far less turbulent than traditional asset classes, giving up less during down markets, while not losing out too much during up markets, again more closely matching the attributes investors look for in infrastructure investments.