Why Foresight is quiet on its infrastructure fund’s outperformance

John Laing Infrastructure helps fund of funds deliver 11.65% in first year

A chunky renewables weighting and a 20% “kicker” after the John Laing Infrastructure Fund was taken over in September has helped the Foresight Infrastructure Income fund (FIIF) over deliver on its total return in its first year.

The £43m fund has generated a 11.65% total return since it launched on 4 December 2017 and is on track to deliver a net annual yield of 5% when its second dividend is confirmed later this month.

Speaking to Portfolio Adviser, lead manager Mark Brennan (pictured), said several tailwinds this year meant the fund has “outperformed expectations” because it should really be delivering a rolling three-year total return closer to 7/8%.

“It’s a funny position to be in because I’m trying not to shout too loudly about that total return performance because we are not going to do that on average every year,” Brennan said. “I think on a rolling three-year basis we should be doing 7/8% total return, we have just had some unusually good tailwinds this year.”

Three tailwinds

Brennan said the portfolio’s 35.3% weighting to renewable energy diversified the fund during the early part of the year when the challenges around Carillion’s collapse and the Labour party’s rhetoric on PFI weighed on the portfolio’s 51.8% allocation to traditional infrastructure.

The fund also received a 20% “kicker” after the John Laing Infrastructure Fund, a 9.5% holding in the portfolio, was taken over in September by Jura Acquisition, a consortium of investors led by Dalmore Capital and Equitix Investment Management, for £1.4bn and at a share price of 142.5p.

Elsewhere, it benefited from solid share price performance and positive currency movements from four non-UK investment companies in the portfolio that were bought in April/May at an “attractive price” after they had been oversold in February.

The investment trusts, which account for 13% of the fund’s NAV, are the Hannon Armstrong Sustainable Infrastructure (US listed), the Landmark Infrastructure Partners LP (US listed), Northland Power (Canada listed), and Infratil (New Zealand listed). “It has reduced our UK correlation,” Brennan said.

“We really rode those tailwinds through the second half of the year which accounts for a lot of our performance,” he added.

Stable yield with low risk and correlation

Brennan said the fund’s first year has shown it can produce a stable yield while reducing risk and correlation. The fund’s annualised volatility has been 4.6% versus the UK All Share’s 11.1% and its beta has been about 0.21.

“If you look at how we performed through the February and October corrections, that low correlation point has been proved multiple times,” he said. “If you look at where you have to go in the fixed income markets to get a 5% yield you have to go pretty junky and you don’t want to be there with rates going up.”

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