Jonathon Curtis 13 June 2019
- The trust invests mainly in projects that partner with governments
- NAV grew 10.8% and the share price rose 20.7%
- Total dividend of 8.05p declared for the year, 8.25p target for the next 12 months
- The managers are confident about future opportunities, despite UK political uncertainty
Infrastructure is still a relatively under-the-radar investment, but it’s got lots of potential benefits for income portfolios. Transport, energy and water are in demand no matter what’s happening to the economy. And their prices can normally be increased – often in line with inflation – without affecting demand too much. So infrastructure’s often seen as a good way to provide a healthy, steady growing income once a project’s up and running.
That’s exactly what HICL Infrastructure Trust aims to do. Its managers invest in a diverse range of infrastructure projects, both in the UK and abroad, which they think can provide a steady flow of income for many years into the future.
The majority of these are public-private partnerships (PPP). 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 place a lot of importance on what they pay for an investment. So they’re having to be especially prudent as infrastructure prices have been pushed up recently by high demand. That’s because continuing low interest rates have forced income-seeking investors to look for better returns on their cash.
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 latest annual report and accounts.
How's the trust performed?
It’s been a good year for the trust. In the 12 months to 31 March 2019, the NAV grew 10.8% and the share price rose 20.7%*. Declared dividends also increased, by 2.5% to 8.05p. The trust yields 5.1% as I write. Remember yields are variable and not a reliable indicator of future income.
The trust’s investment in the Northwest Parkway, a toll road in Colorado, USA, benefitted from higher than expected traffic. The trust’s 50% stake in Diamond Transmission Partners, which transports electricity from offshore wind farms back to the land, has also been successful so far. HICL also managed to claw back some of the losses it suffered as a knock-on result of last year’s Carillion collapse.
Construction milestones were achieved in several projects the trust invests in. These include the A9 road and the Breda Court House, both in the Netherlands, and Irish Primary Care Project in the Republic of Ireland.
|Annual percentage growth|
| May 14 -
| May 15 -
| May 16 -
| May 17 -
| May 18 -
|HICL Infrastructure Trust||17.3%||10.3%||10.0%||-16.5%||15.3%|
Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2019
The managers made new investments in Paris-Sud University and the Blackenburg Connection, which aims to improve road links between Rotterdam and its port. They sold their stakes in the UK Highland Schools and Australian AquaSure desalination public-private partnerships as they felt they could get a better return by selling than by staying invested.
Part of the money from those sales was used to invest more in the A63 toll motorway in France. That investment was negatively affected at the end of 2018 though, when it was blockaded during the French ‘yellow vest’ protests.
The managers have mixed views about the future of infrastructure in the UK. They’re encouraged the Treasury is looking for new ways to help fund essential national infrastructure projects. But they’re also wary of the Labour Party’s talk of infrastructure nationalisation. Coupled with the ongoing political uncertainty in the UK they’re treading carefully.
Nevertheless they’re still optimistic about finding good long-term opportunities. And that includes outside the UK too. Looking further afield the managers are pursuing opportunities in Europe, particularly the Netherlands and Germany, and North America.