HICL Infrastructure Company – May 2020 update

• Some of the trust's investments are playing an important part in the fight against coronavirus
• Almost three quarters of the trust is invested in Public-Private Partnership (PPP) projects
• NAV total return of -3.3% and total shareholder return of 1.9% in the year ending 31 March 2020
• Target dividend per share of 8.25p, a year-on-year increase of 2.5%, but please note dividends are variable and not guaranteed.

How it fits in a portfolio

This trust aims to deliver a long-term, stable income from a portfolio of infrastructure investments operating across the globe. Transport, energy and water are in demand no matter what’s happening in the economy, meaning their prices can normally be increased – often in line with inflation – without affecting demand too much. We think this trust could bring useful diversification to an income-focused portfolio.

Manager

InfraRed Capital Partners is the investment manager for HICL Infrastructure Company. They've been investing in infrastructure assets across the globe for more than 20 years and are home to a well-resourced team of around 90 dedicated infrastructure professionals.

Harry Seekings leads the InfraRed team that manages HICL and is co-head of the infrastructure business. He's been at the company since 1988 and is an experienced infrastructure investor.

Process

The trust invests in infrastructure that's vital to the communities it supports. It invests across the UK, Europe, North America, Australia and New Zealand and its investments can be broken down into three main buckets:

• Public-Private Partnership (PPP) projects
• Regulated assets
• Demand-based assets

72% of the portfolio is invested in PPP projects. This is where companies and government work together to build and maintain things like roads, hospitals and communication networks. The government backing of PPP projects means the managers think they’re among the lowest risk investments in the infrastructure sector. As with any investment though, there’s always risk involved.

The managers recently made an investment in the Blankenburg Connection, a road tunnel PPP construction project in the Netherlands. Only around 3% of the portfolio is invested in assets under construction because they're more risky, but the managers think carefully-chosen construction projects can be an excellent source of opportunity.

Demand-based assets include toll roads and student accommodation, and currently account for around 20% of the portfolio. They tend to be more sensitive to the health of the economy, so were more impacted by the coronavirus crisis and subsequent restrictions on movement. The trust's two toll road investments, the A63 motorway in France and Northwest Parkway in the US, had previously performed well, with traffic beating expectations. The movement restrictions significantly reduced road usage towards the end of the year in review though.

Regulated assets are owners of infrastructure assets such as water, electricity and gas utilities. Consumers need these services whatever state the economy's in, so they have the potential to hold up well when the economic outlook is less certain. They can also increase prices in line with inflation without impacting demand for their services. Regulated assets account for around 8% of the portfolio.

The trust added two windfarm projects to this section of the portfolio over the year. The managers think these investments add diversification while also supporting the UK’s transition to a low carbon economy. These two projects alone are expected to generate enough renewable energy to power over 850,000 UK homes.

The managers can use derivatives and gearing (borrowing to invest), which both increase risk. You can find out more about the risks and the trust's charges in the Key Investor Information and latest annual report and accounts.

Culture

HICL Infrastructure Company launched in 2006 and was the first infrastructure investment company to be listed on the London Stock Exchange. The team behind the trust, Infrared Capital Partners, can trace its roots back to 1990, when it was established as a part of Charterhouse Bank with a focus on real estate.

Investing sustainably is central to HICL and Infrared's culture. The managers ensure each company they invest in takes responsibility for its environmental, social and governance (ESG) impacts, risks and opportunities.

The managers think a company's success is inextricably linked to the social and economic prosperity of the communities it operates in, and many are at the heart of the fight against coronavirus. The trust invests in 25 hospitals and a variety of other companies that offer essential services, from maintenance and portering to catering and cleaning.

Cost

The trust’s current ongoing charge is 1.1%. This compares well with other infrastructure-focused investment trusts listed on the London Stock Exchange. We also think it's positive that the trust doesn’t levy a performance fee. If held in a SIPP or ISA the annual HL platform fee of 0.45% (capped at £200 p.a. for a SIPP and £45 p.a. for an ISA) also applies. Investment trusts are free to hold in a Fund & Share Account.

Performance

It was a solid year for the trust. In the 12 months to 31 March 2020, the NAV fell 3.3%, but the share price rose 1.9%. Declared dividends also increased by 2.5% to 8.25p per share. The trust's dividend yield is 4.9% although yields are variable and not a reliable indicator of future returns.

Overall the portfolio held up well amid the coronavirus crisis, helped by the defensive nature of many infrastructure assets. Some also benefited from greater political certainty following the General Election at the end of 2019.

The biggest impact of coronavirus was felt in the demand-based assets portfolio, where valuations fell to reflect reduced demand. The trust's investment in student accommodation at the University of Sheffield was also held back as rents were frozen for the 2019-20 academic year to support the university's actions to boost occupancy.

The trust's delivered strong performance over the long term though. £10,000 invested at launch in March 2006 would have returned £7,199* in income alone, while the capital value would have risen to £16,644. With dividends reinvested, the total investment would have grown to £29,888. Past performance is not a guide to the future. The value of your investments and any income produced can fall as well as rise so you could get back less than you invest.

Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2020. Figures shown with income reinvested.

Find out more about this trust including charges

HICL Infrastructure Key Investor Information