UK infrastructure’s rapid transition from a niche to an increasingly mainstream asset class has been underlined by a new study, which reveals that over six-in-ten (62 per cent) financial advisers are looking to increase their clients’ allocation to infrastructure over the next three years, a dramatic increase from 32 per cent last year.
The research, conducted among 200 intermediaries by Foresight Group (Foresight), an independent infrastructure and private equity investment manager reveals that three quarters (75 per cent) expect to see more infrastructure funds recommended to clients.
The growing demand for infrastructure is one of the key themes to emerge from Foresight’s survey in which advisers identified de-risking as the biggest change they had made to clients’ portfolios over the last year.
Well over 90 per cent of advisers said they are increasingly concerned about a sustained downturn and increased volatility while three-quarters (75 per cent) are worried about the impact of interest rate rises. At an asset class level, clients’ exposure to UK equities, fixed income and global equities are causing the biggest headaches, according to advisers.
Three-quarters (76 per cent) of advisers said the main qualities sought through exposure to infrastructure are low correlation to equity markets, low volatility (58 per cent) and a defensive element (55 per cent) to their portfolios. Over a third (37 per cent) of IFAs cited Brexit uncertainty as another key driver behind the growing demand for infrastructure.
The study was commissioned to mark the first anniversary of the FP Foresight UK Infrastructure Income Fund (FIIF), which delivered a full year yield of 5.35 per cent and dividend payments of 5.35p per unit. Since its launch on 4 December 2017, the fund has achieved significant capital appreciation contributing to a one-year total return of 11.65 per cent with annualised volatility of 4.6 per cent. In the same time period, the UK All Share delivered a total return of -1.27 per cent with annualised volatility of 11.1 per cent.
Mark Brennan, Lead Fund Manager, says: “Continuing market volatility and clients’ overexposure to traditional asset classes such as equities and fixed income have given rise to a dramatic shift in sentiment towards infrastructure. With an increasing number of infrastructure funds accessible to retail investors entering the market, the opportunity is there for advisers to diversify client portfolios into an asset class that not only produces stable and predictable returns but mitigates many of the threats looming into view.”
“FIIF’s performance over the past year amply demonstrates how high-quality infrastructure and renewable assets can deliver predictable income with low volatility, uncorrelated to traditional asset classes.”
Simon Ring, Managing Director at Ring Associates, says: “We started using Foresight Infrastructure Income Fund earlier this year as part of the lower volatility section within our portfolios. With Bond and Gilt funds being so vulnerable to interest rate rises we are always looking for alternatives. Since using the Fund we have been impressed by its resilience to the present market negativity and are now considering a greater exposure as a counter to equity volatility.”