POWERED BY MOMENTUM MEDIA
How to add infrastructure debt to your portfolio?
Although infrastructure debt, which is a relatively new asset class, is fast gaining popularity with institutional investors, some are still grappling with where it should sit in their portfolio, according to AMP Capital’s global head of infrastructure debt, Andrew Jones.
This asset class, which emerged after the global financial crisis (GFC) due to tougher regulations imposed on the banks which had to reduce their large-scale spending and gave room for institutional investors to step in, qualified for a relatively low capital requirement which made it attractive insurers, among others.
However, investors needed to need to think carefully about the outcomes they were looking for from their infrastructure debt allocation, and where the asset class could complement their existing holdings and offer diversification, Jones warned.
“Infrastructure debt continues to deliver outcomes that institutional investors seek. As we look set to continue in a low-rate environment following the current economic crisis, the consistent yield of infrastructure debt, along with its defensive nature, will continue to be prized,” he said.
“As a relatively new asset class, infrastructure debt has the potential to fit within many traditional buckets of a portfolio.”
As far as the real asset portfolios were concerned, infrastructure debt complemented these assets as a component of a real asset portfolio, as it was less driven by macro-economic conditions than real estate investments and commodities, which tend to be more cyclical and sensitive to market environment.
But adding infrastructure debt to an infrastructure equity allocation could balance the risk profile.
“Infrastructure debt tends to have lower volatility than infrastructure equity investments and adds even more defensive characteristics to the portfolio. In a stressed market environment, subordinated debt ranks ahead of equity and will be less impacted by market shocks,” Jones said.
On the other hand, investors who were seeking high risk-adjusted returns from their alternatives allocation may look at private subordinated infrastructure debt for its higher yield and illiquidity and complexity premia.
Recommended for you
Taking a purely passive investment approach is leaving many investors at risk of heightened valuation risks, Allan Gray and Orbis Investments have cautioned.
Annual trimmed mean inflation saw a slight spike in April, according to data from the ABS.
Active managers say that today’s market volatility and dislocation are creating a fertile ground for selective stock picking, reinforcing their case against so-called “closet indexers”.
Platform leaders admit they’re operating under constant pressure and a persistent “state of paranoia” to keep pace with technology that is reshaping how clients access and interact with their wealth.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
4
DomaCom Shoreline North Coogee
36.26 3 y p.a(%)
5
GAM LSA Private Shares AU I
35.87 3 y p.a(%)
