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As interest rates remain relatively low, and equity markets volatile, many self-managed super fund (SMSF) investors are looking for alternative sources of portfolio returns. Fortunately, SMSFs have a much wider array of investments available to them today than they did even ten years ago.
Traditionally, asset classes such as infrastructure that require large initial investments have been out of reach of many SMSF investors. However, new infrastructure investment products have been coming to market that make it easier to gain exposure to this alternative asset class. This is a boon for SMSFs, particularly given the nature of infrastructure as a long-term investment and how that can align with retirement goals.
What is infrastructure?
Infrastructure refers to the basic physical and organisational structures needed to run a society – this includes toll roads, railways, airports and ports. Also included are telecommunication facilities and power lines.
In the past, governments built these assets for the community but they are also now frequently owned and developed by private entities or through public private partnerships (PPPs). PPPs typically involve a government granting a private entity the contractual rights to operate an asset for a set period. Increasingly, large super funds are also investing in physical infrastructure assets.
These are all assets that are built to last – sometimes for upwards of 50 years – and typically yield a very stable income stream. It is therefore very suited to superannuation with its long-term investment horizons.
Transparency
For SMSF investors it’s also easy to see where the income comes from.
Take toll roads as an example. The government used to charge tolls to cover the construction of a road, but that model is changing. 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 to build and purchase and, unlike a residential property, not something even a large SMSF would be able to own outright. So, if you have an SMSF, how can you can invest in infrastructure?
Managed funds
There are a number of managed funds available to SMSFs and other investors to gain exposure to 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 diversification 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.
| – | Fund size | 1-yr return | 3-yr return p.a. | 5-yr return p.a. | Mgmt fee | Minimum invest ($) |
|---|---|---|---|---|---|---|
| 4D Global Infrastructure A | $359.2m | 10.4 | 6.12 | 9.03 | 0.95% | 25000 |
| AMP Capital Global Infrastructure Securities Unhedged R | $591.7m | 23.4 | 9 | 9.82 | 0.80% | 10000 |
| Ausbil Global Essential Infrastructure Hedged | $111.1m | 20.9 | N/A | N/A | 1.00% | 20000 |
| Ausbil Global Essential Infrastructure Unhedged | $179.0m | 19.4 | 7.58 | N/A | 1.00% | 20000 |
| ClearBridge RARE Infrastructure Value Hedged | $914.9m | 18.8 | 9.6 | 8.16 | 1.03% | 20000 |
| ClearBridge RARE Infrastructure Value Unhedged | $890.2m | 18.2 | 8.57 | 9.02 | 0.97% | 20000 |
| ClearBridge RARE Infrastructure Income A | $669.4m | 21.9 | 13.06 | 11 | 1.03% | 20000 |
| UBS Clarion Global Infrastructure Securities Fund | $145.4m | 16.2 | 9.41 | 9.68 | 1.00% | 5000 |
Source ASX mFund (Data provided by FE as at 07/04/2022, performance data as at 31/03/2022)
The Magellan Infrastructure Fund and the Macquarie International Infrastructure Securities Fund (Hedged) are also infrastructure funds that invest in global infrastructure securities but are not listed on the ASX’s mFund.
| Name | Fund size | 1-yr return | 3-yr return p.a. | 5-yr return p.a. | Mgmt fee | Minimum invest ($) |
|---|---|---|---|---|---|---|
| Magellan Infrastructure Fund (performance data to end July) | $2,060.0m | 16.10% | 10.50% | 12.50% | 1.05% | 10000 |
| Macquarie International Infrastructure Securities Fund (Hedged) | $340.0m | 14.94% | 9.67% | 10.43% | 1.05% | 20000 |
Source: Magellan and Macquarie. Performance data as at July 31 2019
Listed funds
There are also now a number of listed investment companies (LICs), exchange traded funds (ETFs) and listed managed funds on the ASX in the infrastructure space, units of which can be bought and sold on the ASX like shares. The table below shows the type of investment structure, the index it tracks and the management expense ratio (MER)
| ETFs and LICs | ASX code | Type | index | MER (%) |
|---|---|---|---|---|
| Argo Global Listed Infrastructure Limited | ALI | LIC | FTSE Global Core Infrastructure 50/50 Index (net total return AUD) & BofA Merrill Lynch Fixed Rate Preferred Securities Index (AUD) | 1.2 |
| VanEck FTSE Global Infrastructure (Hedged) ETF | IFRA | ETF | Track FTSE Developed Core Infrastructure 50/50 hedged into AUD Index | 0.52 |
| Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) | MICH | MF | Outperform S&P Global Infrastructure Index A$ Hedged Net Total Return | 1.06 |
| Vanguard Global Infrastructure Index ETF | VBLD | ETF | Track FTSE Developed Core Infrastructure Index (with net dividends reinvested) (AUD) | 0.47 |
Stapled securities
If you want to invest directly, there are the stapled securities of the infrastructure companies themselves. A ‘stapled’ security is attached to the security of another entity and usually takes the form of a company’s shares being stapled to a trust or a number of trusts.
| Name | ASX Code | Exposure |
|---|---|---|
| APA Group | APA | Gas Utilities |
| Atlas Arteria | ALX | Highways and Railtracks |
| Global Data Centre Group | GDC | Data Centres |
| Transurban Group | TCL | Highways and 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 assets.
Industry funds
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. The Hostplus Infrastructure Option offers access to a global portfolio of managers and assets. Annual fees are $165 and investment fees and costs are 0.57% per year.
What to watch for
Infrastructure is an asset class worth considering for portfolio diversification but it requires commitment and you may not be able to get your funds out easily.
Because infrastructure assets are often illiquid (that is, difficult to sell quickly) you should get financial advice about how much of your portfolio to invest in this asset class. It is generally considered as more of a satellite allocation for a small portion of your investment portfolio’s total funds than a core allocation.
As demand for alternative investments such as infrastructure increases and prices rise, it is important to be mindful of investment costs as well.
Final word
As a long-term asset with stable income, infrastructure is definitely worth considering for your SMSF or personal 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 amend your trust deed to allow for infrastructure investments if you need to.
Important: This article is general information only and is not a recommendation for you to invest in the asset class or any of the investments listed. SuperGuide recommends you seek independent personal financial advice when considering financial investments that are appropriate for you.
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