Top 100 Funds 2019: Alternative assets

First State Global Listed Infrastructure (GB00B24HK556)

First State Global Listed Infrastructure invests in the shares of companies in areas including water and electric utilities, highways and railways, oil and gas storage, and transportation. Unlike many of the listed broad infrastructure funds, it is not focused on the UK, where only 5.5 per cent of its assets were listed at the end of July. This means it is far less vulnerable to UK political risk than some of the listed infrastructure funds.

Over half its assets were listed in the US at the end of July, with over 7 per cent in each of Canada and Japan. Most of the rest are also in developed economies.

The fund has beaten its benchmark, FTSE Global Core Infrastructure 50/50 Index, over five years. And it has beaten broader global benchmarks such as MSCI AC World index and the IA Global fund sector average over one, three and five years, putting it in the first quartile of this sector over one and five years in terms of performance.

Because its underlying investments are listed shares rather than infrastructure projects, its returns are more likely to move in line with equity markets. But because it is an unlisted fund it will always reflect the value of these, and not swing to discounts and premiums to net asset value (NAV) like listed infrastructure funds. And in down years it has proved to be more defensive than broader global equity benchmarks: last year, for example, it fell -1.64 per cent while MSCI AC World index fell -3.79 per cent and the IA Global sector average return was -5.72 per cent.

Its yield of 2.7 per cent is lower than that of most listed broad infrastructure funds, but its ongoing charge of 0.78 per cent is also lower.

HICL Infrastructure (HICL)

HICL Infrastructure invests directly in projects and assets that facilitate the delivery of public services. Private finance initiative (PFI) and private public partnership (PPP) schemes accounted for 71 per cent of its assets at the end of June, demand-based assets such as toll roads accounted for 21 per cent, and regulated assets such as electricity transmission and water utilities accounted for 8 per cent.

Seventy-seven per cent of its assets are in the UK. This exposes it to political risk because the Labour party has said it will nationalise PFI schemes if it gets into power. However there is no guarantee what it would actually do if it came to power, so some analysts feel that the political risks to infrastructure investment trusts are overstated.

HICL aims to pay a stable income and preserve the capital value of its investment portfolio. The trust paid a dividend of 8.05p in respect of its last financial year, and is targeting a dividend of 8.25p for its current financial year and 8.45p the following year. It has a yield of around 4.8 per cent and has increased its dividend every year since launch in 2006.

Its NAV returns over one, three and five years have beaten the FTSE All-Share index and it has a relatively defensive profile, making positive returns in most years, including in years such as 2018 and 2011 when equity indices fell.

However, the trust may have to write down the value of its investment in Affinity Water due to some problems, equivalent to 1.7-2.2p or 1.1-1.4 per cent of its net asset value (NAV) per share. But this is just one of the trust’s 118 investments and HICL is on track to pay its targeted dividend this year, which should be fully cash covered.

“Performance across the majority of the portfolio appears to be in line with or better than expectations, although Affinity Water continues to be a drag on performance,” say analysts at Numis Securities. “It is disappointing to see a write-down, and further amendments to the valuation cannot be ruled out, but we do not expect these to be significant.”

Renewables Infrastructure Group (TRIG)

Renewables Infrastructure Group has been one of the better performing renewable energy infrastructure trusts over one, three and five years. It aims to provide long-term, stable dividends with a positive correlation to inflation while preserving its capital value. It is targeting a dividend of 6.64p a share for its current financial year, up from 6.5p in 2018. It has a high yield of over 5 per cent.

Unlike some renewable energy infrastructure funds it doesn’t just focus on one sub-sector of this area, but invests across a variety of sectors. This means it does not rely on the fortunes of one particular type of energy, which increases diversity and spreads risk. For example, over the six months to 30 June overall energy generation was down by 3 per cent mostly due to wind resource being less than expected in the UK and Ireland. But this was mitigated by good wind resource in Sweden, and the generation of its solar assets exceeded budget.

At the end of July, it had 73 per cent of its assets in onshore wind, 13 per cent in offshore wind, 13 per cent in solar and 1 per cent in battery technology, spread across 71 renewable energy-generation projects. Ninety-three per cent of these are operational assets, which are less risky than ones under construction.

The trust had 55 per cent of its assets in the UK at the end of July, alongside investments in France, Ireland, Sweden and Germany. At present, the trust has to invest at least 50 per cent of its assets in the UK, but its board is reviewing this limit as its managers see increasingly attractive investment opportunities in mainland Europe.

Renewables Infrastructure Group is managed by the same company as HICL Infrastructure – InfraRed Capital Partners – which has been running infrastructure assets for 20 years and has an international presence.

A downside to the trust is that it sometimes trades at a high premium to NAV, and in early September was on one of around 14 per cent – one of the higher levels it has traded at. If you want to invest new money in it you could look out for when it is on a lower rating – as long as this is not because there is something wrong with the trust. Or drip-feed in a set amount of money on a regular basis so that you buy more of its shares when it is cheap and less when it is expensive.

JLEN Environmental Assets Group (JLEN)

JLEN Environmental Assets offers exposure to operational environmental infrastructure projects that generate predictable and stable revenues. It is the most diversified of the renewable energy infrastructure investment trusts and, at the end of June, had 43 per cent of its assets in wind, 25 per cent in solar, 21 per cent in anaerobic digestion and 11 per cent in waste. These projects are mostly in the UK, where it has to invest at least 50 per cent of its assets, although it also invests in two wind projects in France. JLEN Environmental Assets had 30 investments at the end of August.

The trust aims to pay a sustainable quarterly dividend that increases in line with inflation. It paid dividends of 6.51p a share in respect of its last financial year and is targeting a dividend of 6.66p for its financial year ended 31 March 2019 – an increase of 2.3 per cent. It has a high yield of 5.5 per cent.

The trust targets an internal rate of return of 7.5-8.5 per cent over the long term and to preserve its capital value on a real basis over the long term.

On 1 July, the company running JLEN changed from John Laing to Foresight. However, the fund’s managers have not changed because the team that has managed the trust since launch in 2014, including co-lead advisers Chris Tanner and Chris Holmes, has moved over to Foresight. And JLEN continues to have a first offer agreement with former manager John Laing over a pipeline of environmental infrastructure projects with an estimated value of over £200m.

A downside to the trust is that sometimes it trades at a high premium to NAV, and in early September was on one of nearly 17 per cent – one of the highest levels it has traded at. If you want to invest new money in it you could do so through monthly payments or look out for when it is on a lower rating – as long as this is not because there is an underlying problem.

Standard Life Private Equity Trust (SLPE)

Standard Life Private Equity Trust takes a fund-of-funds approach, mainly buying private equity funds alongside some direct co-investments. It had 59 investments at the end of its last half-year on 31 March, which provided exposure to around 400 unlisted companies.

The trust mainly invests in buyout funds and most of its assets are in Europe, although it had 13 per cent of its assets in North America at the end of July.

Unlike some private equity funds it pays a dividend, which it helps to fund from capital, as private equity is not an asset typically associated with dividends. The trust paid a dividend of 12.4p in respect of its financial year ended 30 September 2018, up from 12p the year before. It is targeting a dividend of 12.8p for its current financial year and has a yield of about 3.5 per cent.

A fund of funds won’t benefit as much from the uplift of a single realisation as a directly investing private equity fund. But the wider diversification a fund of funds offers means it is a lower-risk way to get exposure to this asset class than a directly investing fund.

Pantheon International (PIN)

Pantheon International invests in different investment stages and vintages mainly via private equity funds. At the end of May, it had 40 per cent of its assets in secondary investments – existing funds acquired from other investors – and 27 per cent in primary investments (newly launched funds). And 33 per cent of its assets are in co-investments – direct investments alongside other investors.

Over 60 per cent of its assets were in buyouts, and it also invests in growth, special situations and venture capital. And 55 per cent of its assets were in the US and 26 per cent in Europe.

“Pantheon International benefits from an experienced, well-resourced management team with 82 investment professionals globally [who have] $43.5bn (£35.64bn) in assets under management,” say analysts at Numis. “The investment trust has a mature portfolio offering diversified exposure to buyouts, growth and venture, and an excellent long-term record, with 11.9 per cent a year NAV growth since inception in 1987 and 14.9 per cent a year over the past five years. This is significantly ahead of the equivalent returns from the MSCI World Index of 7.8 per cent and 11.8 per cent, respectively, in Sterling [over one and five years]. The trust’s balance sheet is in good health, supported by strong realisations, and the average uplift over carrying value of 36 per cent in its financial year to 31 May 2019 illustrates the latent value in the portfolio.”

HarbourVest Global Private Equity (HVPE)

HarbourVest Global Private Equity is one of the best-performing private equity investment trusts over one, three and five years, over which periods it is well ahead of broad global indices such as FTSE World.

At the end of its last financial year on 31 January 2019, the trust invested in 46 funds run by its manager, HarbourVest, which in turn invest in primary and secondary funds. It also had seven direct investments alongside other investors. At the end of its last financial year, these offered exposure to 8,704 companies, with the largest 100 accounting for 82 per cent of the trust’s NAV.

Although no one investment is likely to provide a material gain to NAV when it is realised, it also means that if an investment is written off this should also have no material impact.

At the end of July, 44 per cent of its assets were in primary funds, 34 per cent in secondary funds and 22 per cent in direct investments. And 55 per cent of its assets were in the US, 21 per cent in Europe and 7 per cent in Asia Pacific.

The trust has a high total net expense ratio, which is comparable to an ongoing charge of 2.37 per cent. But specialist funds that invest in unlisted assets tend to charge more because what they do incurs higher costs, and HarbourVest Global Private Equity’s strong returns have compensated its shareholders for this.