How a high yielding infrastructure investment trust works

by David Sandham Sep 23, 2013 at 15:57

 

Investment trusts investing in social infrastructure have emerged in the past five years as a popular source of investment income, writes Gavin Lumsden.

 

There are six investment companies in the sector offering attractive yields of around 5% based on investments in schools, hospitals and roads.

 

Demand for their steady income has pushed shares in these investment trusts to big premiums to net asset value (NAV) of between 8% and 15%. However, this has raised concerns that shares in these heavily geared (borrowed) companies could be vulnerable to a fall when interest rates start to rise.

 

In this video interview, Tony Roper, one of the managers of HICL Infrastructure, the oldest and biggest infrastructure trust, tells David Sandham how trusts like his work and what the risks and potential rewards are for investors.

 

After a series of acquisitions and fund raisings HICL Infrastructure has net assets of £1.4 billion. It currently trades at a 9% premium above NAV and yields 5.4%. Its portfolio of 73 investments has grown by 31% over five years with dividends reinvested, although the shareholder total return has advanced ahead of this, by 42%, as a result of the premium to NAV.

 

The next issue of our Investment Trust Insider ezine will look at alternative sources of income, including infrastructure.

 

Comments  (2)

 

Ian Lees: 

Given that the Conservatives are going to fund large infrastructure companies over the NEXT fifteen years - with our income tax . . .surely this is a valuable investment - and an opportunity for us to get our income and other taxes back ?

 

EG High Speed Rail disaster to the Midlands chopping 30 minutes of a journey- at a cost of Billions

 

07:29 on 24 September 2013

 

Ian Davies: 

Good point - and if budgets over-run like HS2 on all the projects, we'll be coining it on good infrastructure funds.

 

However, I doubt whether the Cons will be in for 15 years; they might not survive beyond 2015, even with Milliband/Balls wrecking the Labour brand. Are the other parties committed to infrastructure spending?

 

And what is Clegg's position? Does it even matter, given that UKIP may well eject them from 3rd place? I wonder what a Lab/UKIP coalition would look like: at least it would be fun to watch!

 

10:47 on 24 .9