Infrastructure funds: cheap is not always cheerful

The performance of the UK’s listed infrastructure funds continues to be dismal. The average dividend yield of the renewable energy sector is 8.9%, having spiked to an all-time high of 10.6% on 7 April, according to the Association of Investment Companies (AIC). The average yield of the infrastructure sector is 6.1%, having reached a record 6.8%. Weighted average discounts to net asset value (NAV) are 24% and 17.5% respectively.

Surely these are the sort of companies that investors should be buying as the market rotates away from growth to value investing, and from the US to the rest of the world? “Analysts believe that the pessimism is overdone,” said Annabel Brodie-Smith of the AIC. “There has been some corporate activity, shares are being bought back and assets realised.” Her view has since been partially vindicated with the higher-risk, higher-reward infrastructure funds prospering. Still, the lower-risk infrastructure funds continue to languish, as do renewables.

The subsidy trap of renewables