The VT UK Infrastructure Income Fund (UKIIF), has reached its one-year anniversary with assets under management in excess of GBP120 million, and returned over 11 per cent to investors, including three full and one part-period dividend payments totalling 4.5940p in respect of the C GBP Income Share Class.
The Fund is expected to achieve its target of 5 per cent distributions from the next dividend payment to be announced at the end of March.
Through its investments in 27 infrastructure securities, the Fund has exposure to over 1,000 sterling denominated, UK-based infrastructure projects through both debt and equity, with 80 per cent of the portfolio invested in ‘availability’ based assets, such as PFI schools and hospitals, and public sector-subsidised renewables projects.
The Fund has provided investors with inflation-linked, uncorrelated returns with lower volatility than the wider equity market whilst delivering attractive absolute performance and steady income.
Over the last 12 months the volatility of the MSCI UK was 16.3 per cent versus 5.7 per cent for the Fund in respect to the C GBP Net Accumulation Share Class. It should be noted that the Fund only invests in sterling denominated assets and this strong performance has been delivered despite the post-Brexit collapse in Sterling.
There is a political consensus from the leaders on both sides of the Atlantic regarding the need for a significant increase in infrastructure investment. Prior to the launch of UKIIF with its focus on the UK, open-ended fund investors were restricted to global products many of which have significant emerging market exposure and a bias to demand-driven, GDP sensitive investments.
The firm writes that by accessing the UK’s listed infrastructure sector via UKIIF investors have also made significant cost savings as a result of the Fund’s best execution while participating in capital raises issued by the underlying holdings. This has saved investors 57 bps by purchasing stock at a discount to the prevailing market price. With the Fund charge at 0.75 per cent this equates to a saving of two thirds of the annual management charge.
The Fund is advised by GCP Advisory Limited, a subsidiary of Gravis Capital Partners LLP, the managers of GCP Infrastructure Investments Limited, the GBP916 million market cap lender to the UK’s infrastructure sector. Commenting on the first year performance adviser to the fund Stephen West, (pictured), partner at Gravis Capital Partners, says: “The factors which support investing in infrastructure remain firmly in place. Whilst political events have the capacity to distract and surprise we are focused on our sector and believe that Western governments including the UK will continue to invest in infrastructure, especially as we are near the end of a QE process that has not achieved all that was hoped for in terms of stimulating growth.
“There are some signs of rising market interest rates as QE abates, and in the UK the depreciation of Sterling is producing inflation of both producer and consumer prices. The UKIIF fund can offer protection from inflation and has provided an answer for investors seeking consistent, dependable income beyond the traditional asset classes.
“We remain focused on risk, and will continue to generate our returns from long term cashflows derived from the most reliable and regulated sectors of the UK’s core infrastructure assets, where return characteristics have changed little over the last 20 years. We do not seek higher returns from non-core assets, nor from the riskier parts of financing structures.
“The trust of advisers who have invested in the fund in its first year, which we have greatly appreciated, has enabled us to achieve economies of scale on behalf of investors, with our execution – particularly our participation in placements – enhancing available returns. We look forward to our next distribution which we hope and expect will bring our yield above the 5% mark for the first full year period.”