Three quarters (75%) of financial advisers are bullish about the investment outlook for UK infrastructure assets and the majority (59%) expect to see increasing demand amongst clients for exposure to the sector through SIPPs and ISAs over the next five years, according to a new study.1
The research, conducted by Foresight Group LLP (“Foresight”), a leading independent infrastructure and private equity manager, among 206 financial advisers, shows that infrastructure is poised to become an increasingly popular asset class for investors as it mitigates four of the biggest headwinds facing client portfolios. These were identified asvolatility by more than half (56%) of advisers, a market correction (49%); inflation (42%) and interest rate rises(28%).
Three in ten (32%) advisers are looking to increase their clients’ allocation to the asset class over the next three years.
Foresight’s analysis reveals that UK Listed Infrastructure investment companies significantly outperformed UK equity markets over five years to August 2017. The FTSE All Share grew 61% compared to 70% for UK Listed Infrastructure investment companies2 while also experiencing significantly lower volatility (4.9% against 13.1%) over the same period.
In response to growing demand from advisers and investors, Foresight is applying its experience in the energy and infrastructure sectors to launch an income fund targeting UK infrastructure later in 2017. The fund will invest in UK listed renewable energy and infrastructure investment company equities and bonds.
Growth of renewable energy as an investible asset class
The UK has seen unprecedented growth in renewable energy and infrastructure investment over the last five years. In the next eight years, the UK is predicted to experience a 27% annual increase in cumulative renewable energy generation3. Much of this investment has and is expected to come from UK listed renewable energy and infrastructure investment companies, of which there are over 20, with a combined market capitalisation of £17bn4.
Jamie Richards, Partner at Foresight, commented: “The global and UK energy market is undergoing a generational change, opening investment opportunities across generation, transmission and distribution technologies. The global decarbonisation agenda will lead to a growing reliance on renewable energy, which is becoming cheaper to produce and easier to store. Meanwhile, the retirement of existing fossil fuel plants will drive increased demand.”
“At Foresight, we have a specialist focus on energy infrastructure combined with a tradition of innovation in creating investment solutions that respond to investors’ needs. We manage funds for more than 22,000 private investors and for some of the world’s leading financial institutions. We’re excited to be launching an infrastructure income fund later in the year.”
Simon Bullock, Chartered Financial Planner and Partner at Mulberry Bow, added: “Infrastructure assets have performed tremendously well over the last few years and many of my clients expect that trend to continue. Foresight’s research has shown that infrastructure has become an increasingly popular asset class for investors as it helps mitigate against investment portfolio threats such as volatility, inflation, rising interest rates and wider macroeconomic underperformance. We believe infrastructure is an exciting sector for our clients and would welcome more investment products in this space.”
Renewable energy and infrastructure are attractive asset classes as they are characterised by stable and predictable demand, high barriers to entry and long-term contracted revenue streams. UK listed renewable energy and infrastructure investment companies frequently benefit from protection from inflation as a high proportion of underlying asset revenues are directly linked to inflation.
1Research conducted online with 206 UK financial advisers in September/October 2017
2Bloomberg – Total Return of £10k invested over the last 5 years
3Department for Energy and Climate Change, Updated Energy and Emissions Projections November 2015.
4London Stock Exchange: Total Market Cap of UK Listed Renewable and Infrastructure Investment Companies