Infrastructure funds, therefore, can help to provide some income for investors. Targeted yields on infrastructure funds in the UK, for example, look attractive compared with the average yield of a 1-year UK gilt, which is currently at 0.19 per cent.
For example, earlier this year, fund manager Miton launched an infrastructure fund, focusing on 42 stocks, mostly in the US, with a target annual yield of 4 per cent; while a quick glance at UK listed infrastructure funds shows a range between 4 per cent to 6 per cent yield.
UK government bond yields range from 0.17 per cent for one month up to 1.69 per cent for a 30-year bond.
| Maturity | Yield |
| 1 Month | 0.17% |
| 3 Month | 0.22% |
| 6 Month | 0.20% |
| 1 Year | 0.19% |
| 2 Year | 0.21% |
| 3 Year | 0.26% |
| 4 Year | 0.30% |
| 5 Year | 0.47% |
| 7 Year | 0.70% |
| 8 Year | 0.81% |
| 9 Year | 0.95% |
| 10 Year | 1.04% |
| 15 Year | 1.40% |
| 20 Year | 1.67% |
| 30 Year | 1.69% |
| Source: FT | |
However, it is important to understand the risks implicit in various infrastructure assets, and advisers should consider the yield vs the volatility when adding infrastructure to produce income.
Mr Roth comments: “Investors seeking infrastructure returns as a higher-yielding option to debt investments are likely best suited to stay with markets closer to home, where the risk is measurable and calculable.”
Choices for investors
As mentioned above, there are fund managers bringing infrastructure funds to the market, such as Miton, which are available for both retail and institutional investors and can add diversification into a portfolio.
However, with an annual management charge of 0.75 per cent, and ongoing charges figure capped at 1.5 per cent, this could look pricey within a wider portfolio, compared with other offerings such as passive vehicles investing in infrastructure.
For example, there are exchange-traded funds specialising in infrastructure equity.
The largest tradeable one on the UK exchange at the moment is the iShares Global Infrastructure fund, which invests in infrastructure equity – or, in other words, it invests in the equity firms that invest in infrastructure.
Although this has produced “strong and stable returns” in terms of dividends, according to Morningstar research, over the last five years, the ETF has had a particularly high correlation with the MSCI World.
For Kenneth Lamont, analyst at Morningstar, this strong correlation to the MSCI World index could be a “drawback” for those investors looking for diversification away from global equity markets.
Going global, even towards emerging markets, could be another option, says Mr Ho, who has 6.8 per cent of the Vietnam Opportunity fund invested into infrastructure stocks within this portfolio to diversify the risk.
He explains: “We see exciting opportunities in participating in the sector’s growth, as well as by getting some yield on our investments, which in a way mirrors the profile of the fund as it aims to provide both growth and income.”
