The fund, based on an Australian fund launched by Colonial First State in June, aims to provide inflation-proofed income and capital growth. It was designed to outperform the S&P global infrastructre index by 8-12 per cent a year.
Infrastructure can be defined as companies and facilities that provide essentials such as water, roads and airports. While demand for new and upgraded infrastructure has been growing, government spending has fallen, so the private sector is increasingly being used to meet the demand for essential services.
First State says that infrastructure is an area where there is less competition, which makes it attractive to investors through high barriers to entry, pricing power and predictable cash flows. It also points out that demand for infrastructure assets is growing among pension funds as a way of meeting their liabilities. For retail investors, the main attraction is believed to be the predictable income stream these assets can provide.
The First State fund will diversify across country and sectors including toll roads, airports, ports, oil and cash storage, utilities and transportation. It will be managed by First State head of global listed infrastructure securities Peter Meany and portfolio manager Andrew Greenup.
Meany joined Colonial First State in January and has over 10 years’ experience in the infrastructure and utilities sectors. He previously worked for Credit Suisse Equities, Australia and as an analyst at Macquarie, a company that recently brought a similar global infrastructure fund to the UK market.
Greenup joined Colonial First State in July 2005 and has experience at Allianz Global Investors and Credit Suisse First Boston.
The new fund will hold 30-50 stocks but will not be restricted by the 75 stocks within the benchmark. A universe of 900 stocks will be screened using both quantitative and qualitative analysis. Stocks are then ranked between zero and three and the rankings are used to determine the weighting in the portfolio, with the highest rated stocks comprising up to 10 per cent of the portfolio.
Advisers and their clients may be interested in the First State fund as a means of diversifying their clients’ portfolios across uncorrelated asset classes. It provides competition for the recently launched Macquarie fund, which had been the only fund in this space available to UK investors.