When investors think of infrastructure, their homes or towering office blocks might spring to mind. However, there’s a lot more to it than that.
Infrastructure is broad and diverse. It underpins our economy and includes things like airports, railroads, utilities and renewables, energy midstream and wireless towers.
Infrastructure’s needed to support things like the transition to a carbon-neutral economy and help deal with an increasing global population. The sector is growing, but it’s off the radar of some investors.
Infrastructure can sometimes be difficult to understand or value and to an extent, hard to invest in. But there are ways to do so, and it could offer some interesting opportunities.
Companies in the infrastructure sector often have common characteristics, like being essential services that are in demand even when the economy takes a turn for the worst.
They also tend to be long-lived assets and are used over several decades, often providing a long-term source of income.
New projects normally require lots of spending and in some cases exclusivity agreements, which makes it difficult for competitors. They tend to operate under longer-term contracts or concession agreements, generally resulting in more stable cashflows than other businesses.
How’s the sector performed?
The global infrastructure sector has done well over the past ten years. Although this isn’t an indication of how it’ll perform in the future.
During the pandemic, the infrastructure sector took longer to recover compared to global stock markets. But in more recent months, with rising inflation and interest rate increases, investors are turning to the sector as a potential hedge to offer some respite against inflation. So far, this seems to have paid off, with the sector outperforming the broader market in the first six months of 2022. Of course, this is over a very short timeframe and there are no guarantees this trend will continue.
With supply chain bottlenecks and the ongoing crisis in Ukraine, it doesn’t look like inflation will be going away any time soon. This could see the sector continue to perform well. As ever though, there are no guarantees.
Annual percentage growth
Past performance isn’t a guide to the future. Source: Lipper IM, to 31/05/2022.
Two investment options
Some infrastructure companies are listed on the stock market. That means investors can invest directly in their shares. If you don’t have the time, energy and expertise to analyse the companies, you could consider funds investing in a mix of listed infrastructure companies.
One way to do this is by investing in a fund that tracks a benchmark of infrastructure companies. Passive, or tracker funds are convenient, low cost and simple to understand, generally investing in all the same holdings as a benchmark. They aim to track their benchmark and deliver a similar return. Of course, this can work for and against you depending on the direction of the benchmark.
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
Infrastructure is a specialist area though and comes with more risk. For investors considering this sector, we think it should only form a small part of a diversified portfolio.
This isn’t personal advice. If you’re not sure what’s right for your circumstances, ask for financial advice. Remember all investments and any income they produce can fall as well as rise in value, so you could get back less than you invest.
Legal & General Listed Infrastructure Index
The objective of this fund is to provide a combination of growth and income by tracking the performance of the FTSE Global Core Infrastructure Index.
The fund invests in a broad range of shares in companies where their core activities are related to infrastructure. While there’s a mixture of countries, the US makes up just under 64% of the fund. Having a significant amount of the fund invested in one country can increase its concentration risk.
The fund might also invest in infrastructure companies from emerging markets, which can increase risk.
Legal & General has been running index tracker funds longer than most. It’s also one of the largest providers of tracker funds in the UK. That means it’s got the resources and expertise to track indices as closely as possible, and the scale to keep charges to a minimum.
This fund doesn’t feature on our Wealth Shortlist.
|Annual percentage growth|
| May 17 –
| May 18 –
| May 19 –
| May 20 –
| May 21 –
|Legal & General Global Infrastructure Index C Acc||N/A*%||19.96%||2.73%||3.34%||20.42%|
|FTSE Global Core Infrastructure TR GBP||-0.30%||21.22%||3.18%||3.04%||22.80%|
Past performance isn’t a guide to the future. Source: Lipper IM, to 31/05/22. *Full year performance data not available.
iShares Global Property Securities Equity Index
The fund aims to provide a return by tracking the performance of the FTSE EPRA Nareit Developed Index. This benchmark index measures the performance of shares in leading property companies listed globally. This fund has a greater focus on following the performance of the real estate sector.
The fund invests in most, but not all of the underlying investments in the benchmark in a process known as partial replication. This technique helps replicate the performance of the benchmark without trading in some of the smaller positions, which can be more costly to trade, weighing on fund performance.
The fund can lend some of its investments to others in exchange for a fee in a process known as stock lending. This helps to keep costs lower but can add risk. It also has the ability to invest in smaller companies which have greater potential for growth, but this can add risk.
Given BlackRock’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the FTSE EPRA Nareit Developed index well in future, though there are no guarantees.
This fund doesn’t feature on our Wealth Shortlist.
Past performance isn’t a guide to the future. Source: Lipper IM, to 31/05/22.
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Our fund research is for investors who understand the risks of investing and that investing in funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.