Tim Cockerill (pictured), head of collectives research at Rowan Dartington, explains that while there are open-ended funds on offer that play the theme, to benefit from the full diversification benefits – and to get the best yields – investors need to look to the closed-ended space. He said: "The open-ended options are effectively quasi-specialist equity funds. They are quoted equity which is benefitting from the infrastructure spending going on. As equity funds they suffer from the general volatility of the market."
Closed-ended funds, by contrast, operate more like property funds, Cockerill explains, and by investing in private finance initiatives – or public private partnerships – are able to deliver a high level of stability and predictability.
Given that stability and income are currently two of the most sought-after investment characteristics it is unsurprising that the average premium in the IT infrastructure sector is 7.4 per cent.
John Laing Infrastructure
"If you take John Laing as an example of an infrastructure trust," Cockerill said, "what you are buying is a share of an investment in hospitals, roads, police stations and schools; you are effectively buying a property fund."
"The key thing is that the underlying tenant is the Government, so there is the security of long-term – 20- to 25-year contracts."
"They work on the basis that if the infrastructure is there, they get paid – there’s no question of what people are prepared to pay for it."
Data from the AIC shows this trust, which invests in 35 public private partnership financing schemes, is currently yielding as much as 5.5 per cent.
Cockerill says the growth potential on the John Laing fund is pretty limited, which is backed up by FE Trustnet data, showing a minimal growth in net asset value [NAV] since launch.
Price and NAV since November 2010
Source: FE Analytics
"They seem to have done quite well relatively because of the security of the income and their high degree of stability," Cockerill added.
"However, at some point when the interest rate cycle turns, the capital value may fall. We do not know by how much, and the income stream will still be secure."
The trust's TER is 1.98 per cent.
International Public Partnership
"This is the one we use for our clients. It’s more diversified geographically. John Laing tends to be more UK-focused," said Cockerill.
"We could buy another and we have considered buying others, but we do not think we would get anything we don’t already get with these."
"Given that we use the closed-ended funds for diversification as well as income, this fits into our strategy."
According to the AIC, the trust is yielding 4.8 per cent and at 8.6 per cent its premium is higher than John Laing Infrastructure's 7.2 per cent.
The company’s latest semi-annual report shows that on 30 June it held 54 per cent of its assets in the UK, 18 per cent in Australia and 14 per cent in Canada, while 63 per cent of its contracts are over 20 years in length.
Its TER is 1.55 per cent.
GCP Infrastructure Investments
"GCP holds the debt, the bonds, of these projects, whereas the others hold the equity," Cockerill said. "This gives added security – if it’s necessary in this sector – because bondholders are the first in the queue in the case of problems with repayment."
The fund has the highest yield on offer in the sector: 6.1 per cent, according to the AIC, but investors will have to pay a premium of 8.3 per cent to NAV to buy its shares.
Cockerill says that this type of premium on the sector’s trusts does not concern him, and is in the middle of the historical range for the sector.
The trust's TER is 2.33 per cent.
First State Global Listed Infrastructure
Data from FE Analytics shows that this is the best-performing of the open-ended options out there.
Performance of fund vs sector over 5-yrs
Source: FE Analytics
The fund has made 22.48 per cent over five years, putting it in the top quartile of its IMA Global sector, which contains many funds with very different approaches and thematic focuses.
It is invested widely across the developed world, with 33.7 per cent in North America and 29 per cent in Europe ex UK.
The fund has 1.6 per cent of its holdings in emerging markets and a further 12.5 per cent in the Pacific ex Japan region.
It is available with a minimum initial investment of £1,000 and a total expense ratio of 1.66 per cent.
"If you look at the holdings of this fund you can see National Grid and Scottish and Southern Energy in the top-10, so companies that are very much benefitting from the infrastructure spend," Cockerill said.
"Then there are also stocks which are actually involved in infrastructure spending."
"So it’s a very different fund from trusts like John Laing Infrastructure and 3i, which are invested in the infrastructure projects themselves."