Boring is beautiful
02 March, 2016
It's fair to say that financial markets have had a rough start to the year. But not all asset classes have experienced the same volatility in returns, and in fact defensive infrastructure (and similarly listed property) investments have generally remained in positive territory.
You won't often see us write about defensive infrastructure assets, such as water utilities and energy transmission and distribution assets, because for the most part they typically aren't news worthy and in most cases are really quite boring! But by the same token, this is their appeal. These assets provide essential services that communities depend upon for their day to day living so typically have lower sensitivity to economic cycles, feature regulated revenue or long term contracts and operate in industries with high barriers to entry so face limited competition and/or pricing risk (albeit regulation is also a source of risk). Combined, these attributes mean that defensive infrastructure assets typically feature stable and reliable earnings and cashflows.
This defensiveness is a key attribute of infrastructure investment. In times of market turmoil, it makes sense that investors would want to seek out assets with stable and predictable cash flows. An allocation to infrastructure (& property) investments should be considered by investors as part of their broader investment portfolio as a possible lower-risk option relative to shares or an alternative defensive option to fixed income investments.
The recent performance of defensive infrastructure investments is also a timely reminder of their appealing diversification qualities, which when combined with other asset classes (such as shares and fixed income) should enable investors to earn superior risk-adjusted returns overtime.
While we are only two months into the year, it's pleasing to note that our Fisher Funds Property & Infrastructure Fund is up 0.3% so far in 2016, significantly outperforming broader share markets around the world.