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Self managed superannuation funds have a much wider array of investments available to them today than they did 10 years ago. However, some asset classes remain elusive due to the scale needed to invest in them effectively, compared to the investment capabilities of most SMSFs. Infrastructure is one such asset class. Fortunately, new products and ways to invest in infrastructure have been growing, which is a boon for SMSFs, particularly given the nature of infrastructure as a long-term investment.
What is infrastructure?
Infrastructure refers to the basic physical and organisational structures needed to run a society – this includes roads, airports and power lines. Also included are telecommunication facilities, railways and ports. Traditionally governments built these assets for communities but they are also now frequently owned and developed by private entities or through public private partnerships (PPPs), through which a government might grant a private entity the contractual rights to operate an asset for a set period of time.
These are all assets that are built to last – sometimes for 50 years – and will usually have a very stable income.
SMSF financial adviser and director of Verante Financial Planning, Liam Shorte, says, “it’s very suited to superannuation”. “It’s inflation linked, it is more of a long term investment.”
For SMSF investors it’s also easy to see where the income comes from.
“That’s very important for SMSFs who like transparency,” Shorte says.
Take toll roads as an example. The government used to charge tolls to cover the construction of a road, however with private companies building major roads in public private partnerships, tolls may be charged in excess of the original cost of the asset – providing an ongoing income to the investor (with governments sometimes offering cashbacks to the motorists).
But infrastructure assets are also expensive assets, and unlike a residential property, not something even a large SMSF would be able to own outright. So if you have a SMSF, how can you can invest in infrastructure?
There are a number of managed funds available to SMSFs to invest in infrastructure. Traditionally managed funds have not been a favourite investment tool for SMSFs but for some asset classes, such as infrastructure, they have been the only option. They also offer a level of diversity an SMSF trustee could not achieve on their own.
Below are the funds listed on the ASX’s mFund Service that invest in infrastructure securities.
|Name||Fund Size||1yr||3y ann.||5y ann.||Mgmt Fee||Minimum Invest ($)|
|4D Global Infrastructure A||$52.00m||23.25%||13.00%||N/A||0.95%||25000|
|AMP Capital Global Infrastructure Securities Unhedged R||$1409.07m||21.58%||12.49%||10.39%||0.80%||10000|
|RARE Emerging Markets||$128.40m||12.94%||4.61%||6.07%||1.23%||20000|
|RARE Infrastructure Income A||$4.70m||19.20%||10.05%||8.33%||1.02%||20000|
|RARE Infrastructure Value Hedged||$974.58m||11.12%||7.95%||6.76%||1.03%||20000|
|RARE Infrastructure Value Unhedged||$914.98m||15.20%||10.30%||10.10%||0.97%||20000|
|Redpoint Global Infrastructure||$34.13m||14.58%||10.96%||8.97%||0.70%||20000|
|UBS Clarion Global Infrastructure Securities Fund||$29.87m||16.27%||11.38%||N/A||1.00%||5000|
Source ASX mFund (Data provided by FE as at 09/09/2019, performance data as at 31/8/2019)
The Magellan Infrastructure Fund and the Macquarie International Infrastructure Securities Fund (Hedged) are also infrastructure funds that invest in global infrastructure securities but are not listed on the ASX’s mFund.
|Name||Fund Size||1yr||3y ann.||5y ann.||Mgmt Fee||Minimum Invest ($)|
|Magellan Infrastructure Fund (performance data to end July)||$2060.0m||16.10%||10.50%||12.50%||1.05%||10000|
|Macquarie International Infrastructure Securities Fund (Hedged)||$340m||14.94%||9.67%||10.43%||1.05%||20000|
Source: Magellan and Macquarie. Performance data as at July 31 2019
There are also now a number of listed investment companies (LICs), exchange traded funds (ETFs) and listed managed funds on the ASX in the infrastructure space, units of which can be bought on the ASX like shares. Magellan also offers a listed version of its infrastructure fund.
|ETFs &LICs||ASX Code||Type||Index||MER (%)|
|Argo Global Listed Infrastructure Limited||ALI||LIC||FTSE Global Core Infrastructure 50/50 Index (net total return AUD) & BofA Merrill Lynch Fixed Rate Preferred Securities Index (AUD)||1.2|
|ETFS Global Core Infrastructure ETF||CORE||ETF||Track Solactive Global Core Infrastructure Low Volatility Index||0.55|
|AMP Global Infrastructure Securities Fund (Managed Fund)||GLIN||MF||Outperform Dow Jones Brookfield Global Infrastructure Index AUD||0.94|
|VanEck Vectors FTSE Global Infrastructure (Hedged) ETF||IFRA||ETF||Track FTSE Developed Core Infrastructure 50/50 hedged into AUD Index||0.52|
|Magellan Infrastructure Fund (Currency Hedged) (Managed Fund)||MICH||MF||Outperform S&P Global Infrastructure Index A$ Hedged Net Total Return||1.05|
|Vanguard Global Infrastructure Index ETF||VBLD||ETF||Track FTSE Developed Core Infrastructure Index (with net dividends reinvested)(AUD)||0.47|
And of course if you want to invest directly there are the stapled securities of the infrastructure companies themselves. A stapled security is a security ‘stapled’ to the security of another entity and usually takes the form of a company being stapled to a trust or a number of trusts.
|APA Group||APA||Gas Utilities|
|AusNet Services||AST||Electric Utilities|
|Infigen Energy||IFN||Independent Power Producers & Energy Trader|
|Atlas Arteria||ALX||Highways & Railtracks|
|Spark Infrastructure Group||SKI||Electric Utilities|
|Sydney Airports||SYD||Airport Services|
|Transurban Group||TCL||Highways & Railtracks|
Unlike the funds detailed above, stapled securities offer exposure to only one entity and do not offer the diversification benefits of structures that invest in a number of infrastructure enterprises.
There’s also now a new kid on the block. An industry fund has opened up its internal infrastructure investment options to SMSF investors. And if other funds follow suit, it will give SMSFs a new way to access infrastructure investments directly, rather than through a managed fund.
HostPlus has launched Self Managed Invest (SMI), which allows investors to invest alongside the $43 billion fund. HostPlus SMI has two infrastructure options – Infrastructure (global) and IFM Australian Infrastructure.
The options have initial investment amounts of $10,000 and management fees of 0.42%. Annual fees are$165 and there is also an indirect cost ratio of 0.15% for the IFM option and 0.35% for the Infrastructure option.
What to watch for
Infrastructure is an asset class to explore for portfolio diversification but requires commitment and you may not be able to get your funds out easily.
“It’s illiquid so you’ve got be very careful of exposure,” Shorte says.
Because of its illiquidity you should get financial advice about how much of your portfolio to invest in this asset class.
There are other factors to consider as well.
“A lot of people are moving into it because of the yield,” Shorte says.
“They have to be careful as they may find they are paying above market price.”
As a long-term asset with stable income, infrastructure is definitely worth considering adding to your SMSF or investment portfolio if you haven’t done so already. For SMSF trustees, don’t forget to update your investment strategy for this asset class if it’s a new addition, and your trust deed to allow for infrastructure investments if you need to as well.