Global listed infrastructure the defensive diversifier
Despite the associated risks, global listed infrastructure strategies produced somewhat defensive returns compared to other equities from 2008 to mid-2012 and can add diversification to an investment portfolio, Morningstar's latest sector review has found.
Rather than income generating ability, investors need to keep a total return perspective when considering strategies in this sector, particularly as falls in the Australian dollar can temporarily lower or even halt distributions entirely for many hedged strategies.
"Given the sector's inherent risks, any allocation should come from either an existing global equities or listed property exposure," Morningstar stated.
Given the demand and revenue characteristics of infrastructure assets, this should "broadly insulate them amid carrying economic conditions" and stave off any volatility in returns, according to the review.
In addition, many types of infrastructure companies are relatively well-equipped – when compared to equity strategies – to handle rising inflationary pressures thanks to their "inelastic demand and inflation-linked revenues", according to the report.
"Global listed infrastructure fund managers continue to disagree over what constitutes an appropriate benchmark," it said.
"None of the available indices is a perfect fit, but we believe that a market index is much more appropriate than an inflation-based hurdle, especially when a manager also levies a performance fee."
As part of the Morningstar Analyst Rating, Magellan Infrastructure and RARE Infrastructure Value were both awarded silver, while Colonial First State Global Listed Infrastructure and Vanguard Global Infrastructure were awarded bronze.
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