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Get paid to diversify with VT Gravis UK Infrastructure Income

VT Gravis UK Infrastructure Income provides a good income and diversification
Get paid to diversify with VT Gravis UK Infrastructure Income

If you’re looking for income and to diversify your portfolio with less volatile assets, a good option could be infrastructure. But many of the investment trusts focused on this asset are trading at what look like high premia to net asset value (NAV). This means that you need to make a judgement call on whether to invest now in the hope that the trusts you are considering can continue to do well, or watch and wait.

IC TIP: Buy
Tip style
Income
Risk rating
High
Timescale
Long Term
Bull points

Attractive income

Low volatility

Diversified exposure

Reasonable charge

Bear points

Lags rising equity markets

Infrastructure trusts also invest in a number of different areas, meaning that you need to do a considerable amount of research to establish which ones you want to hold, and to be well diversified you may need to hold more than one.

If you don’t have the time to do the necessary research and or have a smaller portfolio so don’t want to hold many funds, an alternative could be VT Gravis UK Infrastructure Income (GB00BYVB3J98). This fund mainly invests in infrastructure investment trusts which provide exposure to about 1,000 infrastructure projects in various areas including railways, roads, GP surgeries and solar power. So via one holding you have very diversified exposure to real assets.

The fund offers an attractive yield of about 4.4 per cent and has paid out a dividend of over 5p per unit in respect of each of the past three calendar years, in line with its aim of delivering a regular income of 5 per cent a year. It pays dividends four times a year.

VT Gravis UK Infrastructure Income also aims to preserve capital throughout market cycles, with the potential for capital growth and protection from inflation. And it has succeeded in doing this: since launch in January 2016 it has a volatility of 4.71 per cent, in contrast to MSCI UK, an equity index’s, 12.64 per cent. Over 12 months the fund’s volatility is 4.76 per cent against 11.7 per cent for MSCI UK index.

The fund also has a low correlation with UK 10-year gilts and MSCI World Infrastructure, an index of listed infrastructure companies.

“VT Gravis UK Infrastructure Income is well diversified, and offers an excellent way to invest in the growing need for infrastructure in the UK,” comment analysts at research company FundCalibre. “It has a very good yield, which will be attractive to income investors at a time when generating a decent level of income remains challenging.”

Because it is not a listed fund you do not have to buy its units at a premium to NAV. And it does not have a high ongoing charge unlike some other funds of funds. Its ongoing charge of 0.75 per cent is also cheaper than that of listed infrastructure funds.

The fund’s investment adviser, Gravis Capital Management, has extensive experience in the infrastructure sector. 

VT Gravis UK Infrastructure Income’s managers typically invest in funds focused on securities issued by companies with free cash-flow yields derived from long-term contracts with the public sector for the provision of core services, or commercial entities that provide core services within highly regulated and quasi-monopolistic frameworks. The cash flows from these infrastructure assets are often linked to inflation, protecting cash flows in real terms over time.

Although this unlisted fund is not on a high premium to NAV the investment trusts it invests in often are. The majority of projects it has exposure to are government backed, so subject to political risk. And VT Gravis UK Infrastructure Income is likely to lag during times of aggressively rising interest rates and equity markets.

However, its investment adviser looks to minimise what it pays for investments by participating in appropriate capital raising opportunities, to avoid buying infrastructure investment trusts at their most expensive.

VT Gravis UK Infrastructure Income is very well diversified so even if there are problems with some of the underlying investments these are less likely to have a major impact on the fund's overall returns.

This fund doesn't aim to beat markets, but rather mitigate downside and provide an attractive income in most conditions. It should be held as part of a diversified portfolio alongside investments that could do better at a time of aggressively rising interest rates and equity markets.

So if you have a long-term investment horizon, and are seeking income and diversification, VT Gravis UK Infrastructure Income looks like a good way to get this. Buy. LW

 

VT Gravis UK Infrastructure Income (GB00BYVB3J98)
PRICE:116.99pMEAN RETURN:8.07% 
IA SECTOR:SpecialistSHARPE RATIO:1.35 
FUND TYPE: Open-ended investment companySTANDARD DEVIATION:5.37% 
FUND SIZE:£592.35mONGOING CHARGE:0.75% 
No OF HOLDINGS:28*YIELD:4.42% 
SET-UP DATE:25-Jan-16MORE DETAILS:graviscapital.com/funds/gravis-uk-infra/about 
MANAGER START DATE:31-Jul-17**   
Source: Morningstar as at 19 February 2020, *Gravis Capital Management, **Trustnet.

 

Performance
Fund/benchmark6-month total return (%)1-year total return (%)3-year cumulative total return (%)
VT Gravis UK Infrastructure Income8.0113.926.33
FTSE All-Share index7.268.7316.73
MSCI World Infrastructure index5.3318.8825.01
IA UK Equity Income sector average10.979.6514.49
Source: FE Analytics as at 18 February 2020

 

Top 10 holdings (%)
GCP Infrastructure Investments8.4
Renewables Infrastructure Group7.7
GCP Asset Backed Income Fund6.8
Sequoia Economic Infrastructure Income Fund6.3
JLEN Environmental Assets Group6.0
HICL Infrastructure5.0
Foresight Solar Fund4.9
Primary Health Properties4.6
NextEnergy Solar Fund4.5
Bluefield Solar Income Fund4.4
Source: Gravis Capital Management as at 31 January 2020

 

Sector breakdown (%)
Solar19.0 
Wind14.9 
Health13.1 
Housing 12.7 
Other8.9 
Electricity & water8.9 
PFI/PPP6.5 
Transport & logistics6.3 
Communications4.2 
Renewable energy3.5 
Energy storage2.0 
Source: Gravis Capital Management as at 31 January 2020