Martin Pryor advises on the best way to invest in assets such as utilities and transport.
Infrastructure funds are one of the less well-known types of investment, but they can offer options for those looking to diversify their portfolio.
They offer investors the opportunity to put their money into large physical assets, for example:
* Transport assets, such as bridges, toll roads, ports, airports and rail companies. This may include buildings as well as fleets of planes or trains.
* Energy assets, such as oil and gas storage facilities and transportation companies, electricity power stations and renewable energy projects.
* Other utilities, such as communication towers, satellites and water processing plants.
* Commercial property, including schools and hospitals, as well as commercial buildings like office blocks and leisure centres.
These funds provide access to investment markets that are not closely linked to the values of most other shares or bonds. So the value of these assets – and any income they generate – is less likely to be affected by the general ups and downs of the stock market.
It is worth holding a range of different types of funds to reduce risk. A serious correction in one sector or geographical region often has a severe knock-on effect on other equity markets. So, diversification across a mixed-asset portfolio can help offset the effects of such volatility.
Infrastructure funds can also be attractive if you’re looking to generate an income from your investments. These types of assets can potentially earn reliable long-term income streams for investors – whether from fixed tariffs paid for generating green energy, or the
tolls paid on roads and bridges. Of course, like any investment, there is no guarantee that this income won’t be reduced, or disappear altogether in certain circumstances if, for example, there was a cut in government backing for one of these infrastructure projects.
HOW TO INVEST IN INFRASTRUCTURE
In the past, most individual investors have found it difficult to invest in infrastructure. Direct investment into a power station can require large capital sums and has tended to be the preserve of professional investors and large pension schemes.
In recent years, however, a number of funds aimed at retail investors have been launched. These allow fund managers to pool investors’ money to invest in this asset class.
Some are UK-focused infrastructure funds, while others have a global remit. This is a niche area, and it is worth remembering that even large pension funds will only have a small proportion of their portfolio in such assets.
In addition to pension funds some multi-asset funds will also have exposure to infrastructure assets, and it is important to check the extent to which you might already be exposed to this sector through existing investments. You should not invest directly and only invest in regulated funds provided by some well-known investment providers.
The value of your investments, and the income from them, can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Contact Pryor Portfolio Management for more information:
Tel: 07961 162818