Asset manager Miton has launched a new fund estimated to offer an initial yield of 4 per cent. CF Miton Global Infrastructure Income Fund (GB00BD3H9M38) will aim to grow its dividend by 4 to 6 per cent a year by investing in 40 to 50 listed global infrastructure companies. Although a new fund, it will be managed by Jim Wright, who managed the listed infrastructure portfolio within the British Steel Pension Fund for more than 10 years.
The infrastructure sector is in the spotlight due to US President Donald Trump's spending plans and higher expected inflation. Miton's new fund should benefit from those themes: 80 per cent of its investments will be listed in either the US, UK or Europe, and a large number of them generate inflation-linked returns.
Almost half the portfolio will be invested in the utilities sector, with the remainder in sectors delivering a similar risk/return profile, such as telecoms, transport and infrastructure connected to oil and gas pipelines and storage. Those areas have appealed to investors seeking long-term consistent income in recent years due to the long-term nature of projects and inflation-linked yields, which have beaten the low income generated by companies in other sectors. Infrastructure investments have also tended to be less closely correlated with the wider equity market, making them more defensive. The attractive income and more defensive profile some infrastructure funds offer has made them popular, and resulted in closed-end funds of this nature mostly trading at double-digit premiums to net asset value (NAV).
CF Miton Global Infrastructure Income will be ranked in the Investment Association (IA) Global Equity Income sector, in contrast to infrastructure funds such as First State Global Listed Infrastructure (GB00B24HK556), which is in the IA Global sector and yields 2.4 per cent. The IA Global Equity Income sector requires funds to have a yield target of 100 per cent of the MSCI World Index over a rolling three-year period.
CF Miton Global Infrastructure Income will be benchmarked against the FTSE Developed Core Infrastructure index 50/50, although Miton says its composition is substantially different to this index. FTSE Developed Core Infrastructure index returned 11.8 per cent in the 2016 calendar year in dollar terms and yields 3.44 per cent.
Another recent launch with an income focus is Kames Short Dated High Yield Global Bond Fund. This is targeting higher income by only investing in bonds rated CCC or below, and is aiming to provide mid-single-digit returns over the cycle.
The fund will be launched within the next few months, subject to regulatory approval, and be managed by Stephen Baines, alongside Kames' high-yield head, David Ennett. Mr Ennett also manages Kames High Yield Bond Fund (GB00B1N9DY51), which has a yield of 5.47 per cent.
Despite being invested in bonds with a higher default risk, Mr Baines says "short-dated high yield represents a lower volatility segment of the high-yield bond market, and one that has historically offered very attractive risk adjusted returns".
Shorter-dated bonds also offer lower interest rate risk than those with longer maturities.
Performance of Kames High Yield Bond fund (% calendar year total returns)
| 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |
|---|---|---|---|---|---|---|---|
| Kames High Yield Bond | 1.1 | 7.7 | -1.6 | 4.0 | 5.5 | 17.9 | 2.0 |
| IA Sterling High Yield sector average | 1.4 | 10.1 | -0.7 | 1.3 | 7.0 | 19.3 | -3.8 |
| Bloomberg Barclays Global High Yield index | 1.2 | 36.3 | 2.9 | 6.2 | 5.3 | 14.4 | 3.9 |
Source: FE Analytics, as at 28.03.17
