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Infrastructure trusts optimistic of post-Budget surge

27 March 2012

The investment trust sector was one of the few beneficiaries of the policies announced by the chancellor last week.

By Pascal Dowling

Group Editor, FE Trustnet

New plans for a national road-building initiative and massive expansion in the national rail network, detailed in George Osborne’s controversial Budget last week, place infrastructure investment trusts in the spotlight according to the AIC.

Amid uproar over the now infamous "granny tax", the chancellor unveiled plans to invest £130m in the new Northern Hub rail scheme and mooted the idea that Britain’s roads could be the next state-owned asset to be placed into private hands by the Conservative party.

A survey of managers in the IT Infrastructure sector, published by the AIC today, found widespread optimism in the wake of the announcements.

Giles Frost, director at Amber Infrastructure, said: "Overall, the outlook for the UK and wider infrastructure market continues to be positive and investment across the sector remains a key driver of economic growth."

"In the UK, the Government has outlined its commitment to infrastructure investment through the National Infrastructure Plan, and the significant role that the private sector will have in funding and developing the £200bn programme will provide funds with a broad range of attractive investment opportunities going forward."

Simon Elliot, investment trust analyst at Winterflood Securities, said the impact of last week’s Budget was muted because the majority of what was revealed had already been leaked. However he agreed that the news was positive for investment trust investors.

The seven funds in the AIC Infrastructure sector were sitting on an average premium of 6.2 per cent as of 27 March, according to data from FE Analytics, yielding more than 6 per cent on average.

Yield, discount and 1-yr performance of trusts

Trust
Yield (%)
Discount
1-yr performance (%)
InfraRed Capital Partners HICL Infrastructure 
5.68 4.60
9.24
3i Infrastructure
4.73
5.54
6.83
John Laing Infrastructure
2.81
5.32
8.91
Amber Infrastructure International
2.45
7.67
9.82
Bilfinger Berger Global Infrastructure
N/A
8.55
N/A
VinaCapital Vietnam Infrastructure
N/A N/A -33.29
GCP Infrastructure Investments
N/A 5.72
-2.65
IT Infrastructure sector
N/A
N/A
-1.26

Source: FE Analytics


The potentially strong income these trusts generate is a key factor in their appeal, said the AIC, which added: "For investors looking for a steady income source, infrastructure investment companies may be worth a look."

"The closed-ended structure is well suited to this type of investment as it allows managers to take a long-term view. With yields averaging 5 per cent it is perhaps not surprising to see infrastructure investment companies in vogue, but as ever it’s important to do your homework and look beyond the dividend."

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.