Tom Aylott, PORTFOLIO ADVISER, 14 MARCH 2024:
Trusts investing in renewables and infrastructure were high in demand a few years ago when the runway for growth was seemingly endless, but it has been quite a different story over the past couple of years.
Five years ago, infrastructure trusts were trading on an average premium to their net asset value of 3.9% – today, shares in those same trusts are selling at a 30% discount..
However, the investment case for renewables and infrastructure remains the same despite their widening discounts, potentially providing investors with an appealing entry point, according to James Carthew, co-founder and head of investment company research at QuotedData.
“There just doesn’t seem to be a floor to it and some of them are going out to ridiculous discounts,” he said. “People are just not responding to logic there.”
Indeed, the main appeal of renewable and infrastructure trusts – their high levels of income over the long term – remains unchanged despite the widespread selloff, Carthew added. These portfolios invest in multi-year projects that provide consistent streams of revenue, with trusts such as Harmony Energy Income and NextEnergy Solar offering yields as high as 15.4% and 10.8%…
But investors may not have to wait too long to see the share prices of investment trusts in the sector return closer to their NAVs. Matthew Read, senior research analyst and head of production at QuotedData, said improving monetary conditions could lead their deep discounts to narrow significantly.
He expects broader infrastructure trusts with exposure to a range of assets in the sector to move first, with portfolios specialising in renewables alone trailing behind.
“People seem to be more comfortable with infrastructure than just renewables,” Read added. “I think infrastructure trusts are just better understood.”
Some of the biggest renewables trusts such as NextEnergy Solar, Bluefield Solar Income and Greencoat UK Wind (collectively holding £4.3bn in assets under management) could be some of the first to see their discounted shares undergo a re-rating.
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