Evidence in early 2022 shows that it is likely to be a challenging year for financial markets as economies rebuild and adapt following the COVID-19 pandemic. There is growing pressure from rising inflation, tightening of financial conditions and heightened volatility. The impact of the pandemic has been felt by most economies and businesses and with market conditions continuing to be a challenge, investors are starting to look outside of traditional stocks and bonds for reliable sources of income.
Given the influence political and economic events can have on traditional asset classes, it makes sense to diversify exposure towards alternative investments whose returns are less dependent on economic growth to deliver attractive risk-adjusted returns. Infrastructure is one such alternative asset class that, when added to a well-diversified portfolio, can help to lower volatility; increase income; provide a hedge against rising inflation, and enhance risk-adjusted returns.
The Government says it will prioritise investment in renewable energy, and improving transport networks, hospitals and schools. These sectors are the cornerstone of the UK’s economic and social welfare, reflected in the UK Government’s 2020 Spring budget, pledging £640 billion of gross capital investment into roads, railways, communications, schools and hospitals by 2024-25.1
Furthermore, the Government pledged £22 billion for a new infrastructure bank in the 2021 Budget. This public sector spending is expected to help stimulate private infrastructure spending too, which will provide further tailwinds for the sector.2 The announcement continues the commitments made in the 2016-2021 National Infrastructure Strategy which pledged £300 billion to UK projects. This creates ample opportunities for investors seeking long term, stable projects. In fact, the UK is one of the most attractive countries for renewable energy and infrastructure investment, and in the past few years the listed infrastructure sector has achieved attractive returns; stable dividend growth; and consistent premium ratings.
Investing in infrastructure has the potential to enhance portfolio returns as well as delivering wider social and environmental benefits. Many infrastructure projects aim to have a positive impact on the lives of local communities either through enhancing transport networks, rejuvenating schools and hospitals or creating new industries. Supporting renewable energy, rail networks, and healthcare and social projects offers the chance to improve long term returns and secure the economic and environmental future for local and national communities.
Direct allocations to infrastructure projects can be challenging for those without huge sums to invest. However, listed infrastructure funds pool capital from many smaller investors to invest in a wide range of projects, which in turn results in a more straightforward and liquid way of accessing the asset class.
TIME:UK Infrastructure Income invests in a well-diversified portfolio of high-quality asset-backed infrastructure and renewable energy securities, targeting a consistent income return with capital growth. Across the existing portfolio of 26 holdings the Fund comprises infrastructure; renewable energy; secured lending; social infrastructure; digital infrastructure; and logistics companies. However, since the Fund invests in listed investment trusts, the Fund has exposure to over 5,000 individual assets in over 30 subsectors. This extensive universe provides the diversification investors in infrastructure need, and historically has proven to be less volatile than mainstream equities.3
As the impacts of COVID-19 continue into 2022, the political and economic outlook shows no sign of calming, and so many investors are starting to seek alternative asset classes for their portfolios. Infrastructure offers plenty in the way of alternative benefits to traditional asset classes and a diversified, professionally managed fund makes access easy. However, as with all investments it is not without risk and investors should seek professional advice before exploring this opportunity.