by Jennifer Hill from interactive investor, 7th October 2024:
For income-seeking investors, the attraction of allocating to traditional infrastructure or renewable energy was clear: long-term, stable revenues that are often government-backed and inflation-linked.
However, as interest rates rocketed and demand for alternative sources of income plummeted, these investment trust sectors seriously sold off, causing share prices to plunge and move to deep discounts to underlying net asset values (NAVs).
Both sectors have high yields, with the average renewable energy infrastructure trust yielding 7.9%, and the average infrastructure trust yielding 5.9%.
With the Bank of England’s first rate cut in four years in August and further cuts expected (albeit slowly), is a recovery in the offing?..
James Carthew, head of investment companies at QuotedData, further adds: “Investors had perceived these [infrastructure and renewables] funds, which had long traded close to asset value or at premiums, as very safe investments. As the selling pressure mounted, quite wide discounts emerged.”..
FundCalibre continues to be attracted to both sectors due to the natural diversification and energy transition opportunities and suggests exposure at around 15%.
QuotedData likes Pantheon Infrastructure, which at the start of October traded on one of the widest discounts of its peers at -23.2%. “Part of the problem may be that, like the well-regarded and relatively highly rated 3i Infrastructure, the Pantheon trust aims for a mix of capital growth and income,” says Carthew. “The compromise for both trusts is a lower dividend yield, but it seems reasonable that as investors get more familiar with Pantheon Infrastructure, it will be re-rated.”
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