Are infrastructure funds a sensible alternatives to bonds?

PeteinSQ

A friend of mine used to work for HICL which is what brought the existence of these funds to my attention. They seem very low risk and for something low risk seem to have a decent dividend return which could be reinvested. The share prices don’t seem to really increase a great deal though. 

I’m probably missing something (maybe lots of somethings); please enlighten me. 

Prism

Possibly similar in some ways to corporate bonds. They provide a relatively high yield but during a crash do tend to see a reasonable drop. This march HICL dropped around 25% for a short time, although the dividend has barely been touched (it hasn't increased this year as yet). 
I wouldn't say they are that similar to government bonds. 

PeteinSQ

Why do they fall in value during a crash? Isn’t the money all owed by governments and local government and therefore pretty much guaranteed? 

Prism

PeteinSQ said:

Why do they fall in value during a crash? Isn’t the money all owed by governments and local government and therefore pretty much guaranteed? 

Hard to say why people sell during a crash. In the case of HICL then much of the income is fixed but they have roughly 20% invested in on demand infrastructure like toll roads and HS1. People might sell something that has fallen only 25% to buy something else that has fallen 40%.

carry_on_saving2

Technically no, there is no alternative to bonds. No other asset consistently behaves the way bonds do, but within the category of bonds there is a variety by currency, credit quality, maturity, and inflation-linking among other factors (and other marketing terms like strategic or tactical etc. which don't really mean anything).
It is arguable that infrastructure investment trusts (a category within its own vareity from student accommodation to wind farms so you can't consider them all equivalent, and there is an unclear overlap between infrasturcuture and real estate) are not investment trusts at all, but owner-operators of infrastructure assets just like National Grid, United Utilities, Centrica etc. so if you're thinking about infrastructure, you could consider thinking about infrastructure companies as part of the investable universe of infrastructure. The advantage can be a reliable, inflation-linked dividend and low share price volatility, in exchange for essentially no real growth potential. However the sector will have its own specific risks: infrastructure is fixed, inflexible, doesn't adapt; it is physical property and comes with all the same risks and costs and real estate; there are perhaps more legal, political and regulatory risks that might not be as present in the wider market such as price-rise capping and windfall taxes.
If you compare total return history on trustnet, it's not that much less volatility than either the FTSE 100 or FTSE 250 and I'd be sceptical if or how they could continue their outperformance record since inception and this year. Many such funds rely on unique or one-off privatisations, or PFI arrangements with maturity dates. Since you're looking at a UK infrastructure fund, comparing it with UK equity indices seems fair and if you look at the UK's dividend history in the Barclays Equity Gilts Study, it is actually very resilient and tends to at least keep pace with inflation, if what you're interested in is income.

PeteinSQ

Do you get much investment growth from bonds? 

This all feeds into my trying to follow investment advice to mix passive global equity trackers with bonds. I just wondered if these might deliver marginally better returns than bonds.

ColdIron

PeteinSQ said:

Why do they fall in value during a crash? Isn’t the money all owed by governments and local government and therefore pretty much guaranteed? 

HICL is an Investment Trust so it can trade at a premium or discount. During March it's NAV was largely unchanged but it swung from a roughly 15% premium to a 10% discount. Investor sentiment

PeteinSQ

ColdIron said:

PeteinSQ said:

Why do they fall in value during a crash? Isn’t the money all owed by governments and local government and therefore pretty much guaranteed? 

HICL is an Investment Trust so it can trade at a premium or discount. During March it's NAV was largely unchanged but it swung from a roughly 15% premium to a 10% discount. Investor sentiment

Thanks for this. I've seen that they all have a NAV - do they calculate that themselves? Clearly I'm not in a position to decide if their calculations are correct. On the face of it you'd say if it's trading at a discount you should pile in but there's clearly more to it than that.

Malone2020

HICL has also appeared on my radar and I was weighing up taking up a position in it if the price was right. I think it has longevity and while it might not have the big returns that more riskier tech stocks have it seems like a steady slow burn earner, which is perfect as I'm very much a buy at discount price and then hold forever kind of investor. 
From what I remember HICL also own schools, and rain stations etc. Basically, if I haven't gotten my wires crossed, their main client is the UK government who are probably as soundand reliable client as any investor is likely to get. 

Malone2020

*rail stations

Prism

HICL portfolio
https://www.hicl.com/portfolio/sectors