@ a glance newsletter
Global listed infrastructure: time for yield and growth
(October 2010)
By Craig Noble, Portfolio Manager, AMP Capital Global Infrastructure Securities Fund
Against the backdrop of recent market uncertainty and crisis, global infrastructure has exhibited strong performance. Now, attractive valuations on global infrastructure securities, underpinned by strong fundamentals, are demanding closer attention from astute investors.
According to a recent study by the World Bank, there will be an ‘infrastructure gap’ of some US$25 trillion globally in the next 25 years. Governments are cash strapped and the private sector is increasingly forming part of the solution to fill that gap.
There are now some 216 listed infrastructure companies globally with market capitalisation totalling US$725 billion*. 25% of these are in emerging markets. The arguments for investing in these global infrastructure securities are compelling. Here are just a few of them.
Stability of cash flows, plus growth
Over the past 10 years, infrastructure companies have seen their cash flows grow between 4% and 10% per annum according to the Dow Jones Brookfield Global Infrastructure Index. Moreover, this data shows stability in these cash flows over time. Even during the tough years of 2008 and 2009, when global equities showed annual cash flow declines of -12% and -1% respectively, cash flow growth for global infrastructure was +6% and +4% (see chart below).
As of June 30, 2010. The MSCI All Country World Index is a free float- adjusted market capitalisation weighted index that is designed to measure the equity market performance of developed and emerging markets. Note: Median EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). Source: FactSet, Dow Jones Brookfield Global Infrastructure Index, Merrill Lynch Global Quantitative Strategy, MSCI, IBES, Worldscope.
In the past, typically only large institutional infrastructure investors participated in the infrastructure asset class. With the burgeoning listed infrastructure securities market these stable cash flows are now accessible to everyone.
Impressive risk adjusted returns
When compared to the risk/return profile for international and Australian shares for the period from 31 December 2002 to 31 March 2010, infrastructure offered higher returns, with lower volatility (see Table 1 below).
Table 1: Return and Volatility for Global Listed Infrastructure Compared
| Indices | Volatility % pa | Return % pa | |
|---|---|---|---|
| Global Listed Infrastructure | Dow Jones Brookfield Global Infrastructure Net Hedged AUD |
11.90% |
13.90% |
| Australian Shares | S&P ASX200 Accumulation Index | 13.90% |
11.86% |
| Australian Bonds | Barclays Global Aggregate Index Hedged AUD | 2.70% |
5.51% |
| International Shares | MSCI World exAustralia Net in AUD | 14.50% |
5.82% |
| International Bonds | UNS Composite Bond All Maturities Index AUD | 2.90% |
7.07% |
Source: AMP Capital Investors. All index data returns are annualised, before fees and tax, and are fully hedged into Australian dollars. Past performance is not a reliable indicator of future performance.
In addition to lower volatility and risk, infrastructure returns generally show low correlation with returns on other asset classes. Global infrastructure assets are relatively heterogeneous in themselves, across sectors and geographies, providing even greater diversification benefits in a portfolio.
The Dow Jones Brookfield Global Infrastructure Index, illustrated in Chart 2, provides a representative illustration of the global listed infrastructure market, and how it is diversified across infrastructure sectors. The investment universe, and the index, can be categorised into four main sectors: energy; transport; water; and communications. This Index illustrates the extent to which a well invested global infrastructure securities portfolio can benefit from diversification across these sectors.
Chart 2: Defining Infrastructure – Index Comparisons
Why listed infrastructure? Why now?
The Australian listed infrastructure market accounts for just 5% of the global infrastructure market. The emergence of global infrastructure securities in recent years opens up the rest of the infrastructure world to investors. Globally, listed infrastructure assets are attractively valued at this point in time, both for their stable projected yields, and their potential for capital growth. Sophisticated investors are increasingly looking at this asset class and are drawn by the combination of attractive diversification characteristics, strong yields, and good growth prospects.
Find out more about the AMP Capital Global Infrastructre Securities Fund
*Source: AMP Capital Investors research
