It’s hardly the most exciting of sectors. But by investing in the public/private partnership (PPP) deals that have funded Britain’s public building works in recent years, the HSBC Infrastructure fund (LSE:HICL) has bucked the bear market with a 22% return in the past year.
Tony Roper, a structural engineer turned accountant, runs the fund, which counts Colchester Garrison, the Home Office Headquarters and several hospitals in its portfolio of assets. Roper prefers to buy into ‘availability’ projects, such as schools or hospitals, rather than “‘patronage’ assets such as toll roads”, he tells FT Adviser. The income from the latter is “often linked to usage, and therefore more sensitive to wider economic forces”.
The £438m fund, which started with just ten investments, is “low risk because all projects are up and running”, Charlie Campbell at UBS tells The Sunday Times. He also likes the 5.5% yield it achieved last year and which it expects to achieve again in 2008. Trading on a premium to its net asset value of 3.2%, the fund may look pricey. But given that it grew profits by 28% in the year to 31 March, that looks reasonable, given its rate of growth.
And infrastructure looks a sound long-term bet for patient investors, says Meera Patel of Hargreaves Lansdown in FT Adviser. Underinvestment in America and Europe means opportunities in the area are vast, with everything from bridges to toll roads being repaired. But “as with commodities, the sector has a long growth cycle, so it will take 15 or 20 years to play out its potential”.
Contact: www.hicl.hsbc.com.
HSBC Infrastructure Fund top ten holdings:
Bishop Auckland Hospital
Central Middlesex Hospital
Colchester Garrison
Dutch High Speed Rail Link
Health and Safety Laboratory
Hone Office
Kemble Water
South East London Police Stations
Stoke Mandeville Hospital
West Middlesex Hospital