What to do when you’re waiting for a correction
Investors sitting on the sidelines while the North Korean political situation continues to play out could be waiting for a while.
Clearly, the North Korean situation is a concern for many investors.
Our view is that the risk of a skirmish or war has grown, but that a diplomatic solution remains the most likely outcome. Having said that it seems we are a long way from a diplomatic solution at this stage, so the issue is likely to persist and potentially escalate further. This risks triggering further downside in share markets, and will likely increase investor demand for safe havens. In this situation, investments with low listed market correlation could be increasingly appealing.
Self Managed Superannuation Fund (SMSF) trustees have increasingly been “going to cash”, the latest SuperConcepts SMSF Investment Patterns Survey
Across the 3,000 SMSFs surveyed, the level of cash within their funds increased significantly from 18 per cent to 19.8 per cent over the previous quarter.
While cash might offer the ultimate safe-haven for investors seeking protection from a possible market correction, infrastructure assets have historically proven to be more resilient than many other asset classes in downturns.
One of the benefits of infrastructure assets is that they tend to be relatively resilient through market cycles. This is because infrastructure assets are essential services assets - assets that people must use day-in, and day-out, for example people will always need water for drinking, and energy for light, heating, and cooking. Due to the nature of the “essential services” they provide, these types of assets are often less influenced by economic factors and market cycles than many other businesses.
And of course unlisted assets are not subject to listed market sentiment - they are valued by independent valuers based on the fundamentals of the businesses, so they don’t tend to be impacted by the same investor behaviour that impacts listed markets.
The liquidity conundrum
While investing in real assets like infrastructure can raise possible liquidity concerns with investors, blending a mix of listed and unlisted assets can offer exposure to the asset class without locking up funds.
In the AMP Capital Core Infrastructure Fund, we target having 50 per cent of our portfolio invested in unlisted assets, and 50 per cent invested in listed infrastructure securities and cash. So we have a fair bit of liquidity available in the portfolio on any given day.
In normal circumstances the fund looks to pay withdrawals within 10 business days. The fund was launched in 2007, and throughout the entire life of the fund we have paid every withdrawal request within the relevant redemption timeframe, although we do have the ability to extend the withdrawal payment timeframe if we consider it is in the interests of all investors to do so.
Important note: We aim to pay withdrawals within 10 business days, however due to the liquidity characteristics of unlisted infrastructure assets we may take up to 365 days or longer to pay, and our ability to meet withdrawals is dependent on the Fund remaining liquid for Corporations Act purposes.
AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMPCFM) is the responsible entity of the AMP Capital Core Infrastructure Fund and the issuer of the units in the Fund. To invest in the Fund, investors will need to obtain the current Product Disclosure Statement (PDS) from AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232 497) (AMP Capital). The PDS contains important information about investing in the Fund and it is important that investors read the PDS before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund. Neither AMP Capital, AMPCFM nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this information. Past performance is not a reliable indicator of future performance.