Infrastructure funds on the move

Similar trends have occurred in Australia, with total government spending on infrastructure assets falling from around 14 per cent to 5 per cent since 1970.  

For investors, the emergence of infrastructure funds has provided opportunities to invest in new and existing assets. Australia is a leader in this field, with over $9 billion in infrastructure funds now listed on ASX.  

Infrastructure assets typically include toll roads, airports, communication towers, utilities, rail facilities and seaports. There are currently five infrastructure funds available on ASX, with specialised management companies looking for expansion opportunities domestically and offshore.

Diversified Utility and Energy Trusts (DUET), jointly owned by AMP Capital and Macquarie is an upcoming and unique addition to ASX lists. The vehicle will invest in energy utility assets principally in Australia and New Zealand with plans to grow and diversify the portfolio.

The aim of the fund will be to provide investors with predictable income, with a distribution yield of 9.75 per cent forecast for the coming year.

The infrastructure fund sector has performed handsomely over the last 12 months with Macquarie Airports, Macquarie Communications and Australian Infrastructure fund returning 47.54 per cent, 28.51 per cent and 15.2 per cent respectively.

Investment returns from infrastructure funds tend to have a combination of capital growth and cash yield, depending on growth aspirations of the fund manager. For growth-orientated funds like Macquarie Infrastructure Group, the absence of stable income in the near-term tends to be compensated with growth in the medium term when expansion opportunities become limited.

Infrastructure funds are increasingly being used in investment portfolios as their sustainable competitive advantage becomes more apparent. For example, toll roads and airports tend to have no comparable alternative routes and high barriers of entry, creating a limited competitive environment, ideal for steady growth. 

The essential nature of infrastructure assets means that the income streams are predictable and on-market price movements less volatile than other shares.

Like property trusts, these vehicles tend to have tax-deferred income, meaning investors do not pay tax on a portion of their income (dividend) until their investment is sold. The tax-deferred income reduces the cost base providing investors, upon disposal, to the 50 per cent capital gains tax concession. 

Private investment in traditional government owned assets is set to continue with police stations, schools and hospitals the next likely candidates. Growth opportunities will also continue overseas making infrastructure a key growth area of funds management.

Investors can buy and sell infrastructure funds in the same way as other shares through their broker or financial adviser.  More information on Infrastructure funds and other listed managed investments can be found at www.asx.com.au/LMI.

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