Are infrastructure funds a sensible alternatives to bonds?

ColdIron

PeteinSQ said:

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.

The NAV is a composite of the investments held by the trust so it depends what those assets are. Liquid and frequently traded shares are easy to determine, illiquid assets that may only be valued quarterly and may involve an element of estimation, less so. And then there is misrepresentation

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.

Indeed, you need to know why a trust is trading at a discount and take a view

HICL has pretty much always traded at a premium until a few years ago when John McDonnell stated his intention to return PFI assets to public ownership. Many argued that this expensive policy would be low on the list of priorities compared to cheaper higher profile flagship policies but HICL moved to a discount. It was followed up by Stella Creasy who argued that Corporation tax was higher at the time of PFI and the trusts had received a windfall so she proposed a windfall tax. This was much more realistic and the discount widened because investors were spooked. In hindsight those would have been a good times to invest but it didn't feel like it at the time

Compare and contrast to Woodford Patient Capital, a trust that traded at an even deeper discount so would have been an even better buy?

It's important to understand why a trust is trading at the price that it is rather than just piling in because you are getting a bunch of shares at an apparent bargain price

Malone2020

Thanks for posting this. 
Looks like a safe and sound portfolio. Certainly seems a more sensible option than a REIT that majors on high street retail space in the current climate, and even warehouse or residential properties for that matter. Boom or bust, inside the EU or out of it, fire stations etc are still a necessity and the UK government are still going to pay. 
Someone mentioned a discount above. Can I just please clarify what exactly the % of any discount is and how it is measured (so against pre March slump price, 52 week high, book value)? 

Moe_The_Bartender

For an infrastructure investment, this covers all bases.

https://www.ishares.com/uk/individual/en/products/251809/ishares-global-infrastructure-ucits-etf

bowlhead99

Moe_The_Bartender said:

For an infrastructure investment, this covers all bases.
https://www.ishares.com/uk/individual/en/products/251809/ishares-global-infrastructure-ucits-etf

Though it is the same 'sector' as the fund mentioned in the OP, that sort of fund (that's 100% invested in the equities of global listed infrastructure companies such as National Grid, Severn Trent, Centrica and their international equivalents) may perform quite differently to a 'private equity' infrastructure player such as HICL or INPP which will have a mixture of debt and equity investments in infrastructure projects under construction and operation, PPP initiatives etc.

Moe_The_Bartender

Very true but do you think that Private Equity is the right thing for a novice? I have have a bit of PE (HVPE) but it’s hard to value and a very long term play. I've looked at both HICL and INPP in the past but decided that they were not for me.

Audaxer

ColdIron said:

PeteinSQ said:

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.

The NAV is a composite of the investments held by the trust so it depends what those assets are. Liquid and frequently traded shares are easy to determine, illiquid assets that may only be valued quarterly and may involve an element of estimation, less so. And then there is misrepresentation

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.

Indeed, you need to know why a trust is trading at a discount and take a view

HICL has pretty much always traded at a premium until a few years ago when John McDonnell stated his intention to return PFI assets to public ownership. Many argued that this expensive policy would be low on the list of priorities compared to cheaper higher profile flagship policies but HICL moved to a discount. It was followed up by Stella Creasy who argued that Corporation tax was higher at the time of PFI and the trusts had received a windfall so she proposed a windfall tax. This was much more realistic and the discount widened because investors were spooked. In hindsight those would have been a good times to invest but it didn't feel like it at the time

Compare and contrast to Woodford Patient Capital, a trust that traded at an even deeper discount so would have been an even better buy?

It's important to understand why a trust is trading at the price that it is rather than just piling in because you are getting a bunch of shares at an apparent bargain price

I like the look of HICL and wish I had taken the plunge a few months ago when the price was lower, but with a yield of around 5%, I think it still may be good time to buy, despite a premium of around 10%. Another IT I like the look at for income is The Renewables Infrastructure Group (TRIG) which is also yielding around 5%, and has an even higher premium of around 20%. Is there anything wrong with buying good ITs at fairly high premiums to bring a bit more diversification to an income portfolio? 

carry_on_saving2

A few things to watch out for.
In the dot com bubble the MSCI World Infra index drawdown was 66%, Vs 30-40% for most stock market indices and is as concentrated as the FTSE 100.
It is still very correlated with, and so not a good diversifier for equity.
Infrastructure is capital intensive, inflexible, high maintenance physical property dependant on custom, whereas other businesses can adapt to changing customer demands (a toll road can't launch a streaming service).
It's a sound investment but I don't see either specific infrastructure funds or a sector fund like the iShares or L&G one as a substitute for bonds.

ColdIron

Audaxer said:

ColdIron said:

PeteinSQ said:

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.

The NAV is a composite of the investments held by the trust so it depends what those assets are. Liquid and frequently traded shares are easy to determine, illiquid assets that may only be valued quarterly and may involve an element of estimation, less so. And then there is misrepresentation

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.

Indeed, you need to know why a trust is trading at a discount and take a view

HICL has pretty much always traded at a premium until a few years ago when John McDonnell stated his intention to return PFI assets to public ownership. Many argued that this expensive policy would be low on the list of priorities compared to cheaper higher profile flagship policies but HICL moved to a discount. It was followed up by Stella Creasy who argued that Corporation tax was higher at the time of PFI and the trusts had received a windfall so she proposed a windfall tax. This was much more realistic and the discount widened because investors were spooked. In hindsight those would have been a good times to invest but it didn't feel like it at the time

Compare and contrast to Woodford Patient Capital, a trust that traded at an even deeper discount so would have been an even better buy?

It's important to understand why a trust is trading at the price that it is rather than just piling in because you are getting a bunch of shares at an apparent bargain price

I like the look of HICL and wish I had taken the plunge a few months ago when the price was lower, but with a yield of around 5%, I think it still may be good time to buy, despite a premium of around 10%. Another IT I like the look at for income is The Renewables Infrastructure Group (TRIG) which is also yielding around 5%, and has an even higher premium of around 20%. Is there anything wrong with buying good ITs at fairly high premiums to bring a bit more diversification to an income portfolio? 

I bought HICL for my drawdown SIPP in May 2017 when the price, NAV and premium were pretty much where they are today so my position is flat and in line with my expectations. I've had three years of income from the dividends which is why I bought them and they do provide some diversification from equities and fixed income. Some ITs seem to trade at an almost permanent premium so unless you wait forever you might just have to bite the bullet. But if you don't need the income now perhaps you could take the opportunity to keep a close eye on them until you do

bowlhead99

Malone2020 said:

Someone mentioned a discount above. Can I just please clarify what exactly the % of any discount is and how it is measured (so against pre March slump price, 52 week high, book value)? 

In the context of an investment trust or listed investment company, a 'discount' or 'premium' doesn't relate to previous market prices; it simply refers to the percentage difference between the most recent published book value of net assets per share ('NAV') and the share price per share. If the NAV at end of March was 152p and a dividend of 2p per share has since become payable, the theoretical remaining NAV is 150p per share, so if they are trading at 200p per share that's a 33% premium and 100p per share would be a 33% discount to that last known NAV.

For investment companies holding assets which don't have daily published values (rather than a porfolio of stockmarket listed shares whose price could be pulled off a screen every afternoon), the NAVs will be released less frequently than daily. HICL only provides a full report each March and September, as it's not practical to evaluate a portfolio of private assets on a daily basis. In between, it will occasionally release news or trading updates.  But when you see a share price of 140p or 160p against a several-months old NAV of 150p, you know that old NAV is 'stale' anyway. The real NAV (as of the day you're considering buying or selling a share on the stock exchange) will have moved on from 150p based on how the market and business conditions are looking for the underlying assets, the effects of additional fundraisings etc.  However, the 'real NAV' is not published in real time.

So, naive investors might be looking at today's share price of 166p and thinking that's a premium to what the assets are really worth because they were last told that the assets were worth 150p. Whereas professional investors might have considered the likely positions of the underlying businesses, market multiples paid for listed companies comparable to some of those businesses, the movement in interest rates that would be used within discounted cashflow analysis when valuing some of the businesses,  and the fact that there was a successful fundraising at 164p a couple of months ago; they may consider today's 166p to really represent a discount to their own guesstimate/ assessment of a current underlying NAV of 170p, so they think they are getting it for a discount rather than paying a premium.

It will be late November before HICL actually publish their 30 September NAV, but by the time that information is available to inform decisions, you would be eight weeks too late to actually be able to buy or sell a share for the 30 September stock exchange price.

ColdIron

Malone2020 said:

Someone mentioned a discount above. Can I just please clarify what exactly the % of any discount is and how it is measured (so against pre March slump price, 52 week high, book value)? 

Essentially it's simply an expression of the current share price divided the NAV expressed as a percentage. It's a floating value that changes as often as the share price or the NAV does