Whether you're for or against it, the saga of HS2 has not necessarily shown British infrastructure investment at its best, but this quarter it seems allocators are particularly bullish about the asset class.
Our latest DFM sentiment survey found 41 per cent of the allocators we asked were bullish on infrastructure, with 35 per cent neutral here. Just 24 per cent were negative as it stands.
This is a fairly strong turnaround from earlier in 2024. When we asked in April, the majority of allocators were neutral on infrastructure.
To misquote James Carville: “It’s the rate cuts, stupid.”
First, as we reported yesterday Marlborough is one of the allocators taking a particular liking to infrastructure, among other portfolio changes.
They’ve bought both their own Marlborough Global Essential Infrastructure fund, as well as the L&G Global Infrastructure Index, to bolster this exposure.
“With interest rate cuts underway, we moved to overweight in August 2024, expecting a rebound in the sector, which has lagged since rate rises began,” they said.
Portfoliometrix also supports the rate cut argument, and added that recent history also plays a part in their optimism.
“Historically, there was significant underinvestment in infrastructure,” said Alex Funk, their newly-appointed chief investment officer.
“Now, substantial investment is required to keep pace with growing economies. This need is further bolstered by the focus on fiscal investment by governments in the US and other Western countries, providing a strong tailwind for the asset class.”
Funk said he gets his allocation to infrastructure projects through M&G Global Infrastructure, which is held by just one other allocator in our database.
On that note, M&G Wealth is another allocator which is feeling good about the asset class, though is mindful of the associated risks.
Their multi-asset CIO Fabiana Fedeli said there were opportunities in long-forgotten areas such as renewables, but that selection is crucial as some stocks could be affected by more idiosyncratic issues, such as ‘supply gluts or permanently-weakened balance sheets’.
One of the few houses which is bearish on infrastructure is Premier Miton. MPS head Chris Robinson said tighter fiscal regimes in the developed world ‘may see cuts’ on larger projects.
He added that the sector 'does require careful monitoring of ESG risks', too.
If you're a DFM who's concerned about this, you can always get yield from elsewhere.
Indeed the team at FE Investments is doing just that – they are also bearish on infrastructure but remain particularly optimistic about money market funds as a source of income.
“Though returns from money market instruments have slightly decreased and are expected to decline further, they remain near historical highs,” said Charles Younes, deputy chief investment officer.
“We are content to capture these high, risk-free yields while ensuring our portfolios are hedged against inflationary pressures.”
