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Why these defensive investments will continue to deliver

Sam Benstead from interactive investor, 12th July 2022:

Amid a sea of red this year, one sector is flashing green: infrastructure and renewables.

Investors have had very few places to hide this year, as higher interest rates and inflation spark an exodus from the stock market.

Year-to-date, US shares have fallen around 20% (S&P 500 in dollar terms)., Shares on a global scale (MSCI World Index) have tumbled a similar amount, and UK stocks (FTSE All Share Index) have dropped 7.5%.

But one sector has provided a refuge and delivered positive return: infrastructure and renewable energy investment trusts.

Covering both physical renewable energy assets, such as wind turbines and solar farms, as well as schools, roads and hospitals in the traditional infrastructure sector, the typical fund in these spaces have made money over the past year, three years, five years – and more than doubled returns over 10 years.

Particularly impressive are renewable energy infrastructure investment trusts, which have returned on average 13% over the past 12 months, compared with a 0.5% loss for the FTSE All Share. Traditional infrastructure investment trusts have returned 3% over the past year on average.

Top performers over the past 12 months include 43% for Gresham House Energy Storage, 32% for JLEN Environmental Assets Group, and a 13% return for 3i Infrastructure.

Infrastructure assets are prized for their consistent and inflation-linked income, which will keep being paid even during a recession. They also own physical assets, which tend to increase in value when there is inflation.

Even after a strong run over the past year, Matthew Read, senior analyst at investment trust analyst QuotedData, argues they continue to be excellent defensive investments.

He said: “While rising interest rates have been depressing the valuations of growth stocks, infrastructure investments have been finding favour as they offer certainty in current volatile markets and provide a completely different return profile to the types of investments that the market is shunning today.”

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