Listed infrastructure has gained a strong foothold in NZ portfolios, according a new Russell Investments study, with a surge of local-domiciled funds now tapping into that demand.
The Russell analysis shows investors have poured at least $900 million into seven NZ-based listed infrastructure funds – five of which have launched within the last three years – with a further unspecified amount also sent across the Tasman to Australia-housed strategies managed by Maple-Brown Abbott and Magellan.
But despite plying the same asset class, the Russell report highlights a wide divergence among the funds offered to NZ investors driven by differences in benchmark, investment style, fees, ESG content and hedging policies.
For instance, 12-month returns to the end of June this year among the nine listed infrastructure products profiled in the study range from -4.4 per cent for the First Sentier fund to the 7.8 per cent garnered by the Maple-Brown Abbott strategy.
Of the four funds in the Russell analysis that have a track record of at least 10 years, the longer-term annualised performance spans a tighter range of over 8.4 per cent to 10.6 per cent.
And the multiple infrastructure benchmarks offered by the likes of FTSE Russell, S&P and Dow Jones Brookfield are all represented in the NZ fund sample.
“Popular infrastructure indices have highly divergent allocations to industries and countries,” the study says. “As such, benchmark choice can result in materially different outcomes for index funds (though less so for active managers as fund managers typically go ‘off benchmark’ to access a full range of global infrastructure opportunities).”
Indeed, the average listed infrastructure fund in a wider Russell survey has outperformed their respective indexes by more than 0.9 per cent per annum over the last five years: a hand-picked cohort of managers rated highly by Russell have beaten the median manager by about 1 per cent each year over longer periods.
“Perhaps due to limitations with common indices used, infrastructure is the market segment where it pays to be active,” the paper says.
Only Kernel, which launched an unhedged global listed infrastructure in 2020 and a NZ-dollar hedged version last year, follows an index strategy in the asset class (as surveyed by Russell).
Bar Russell, which follows its usual multi-manager approach, all of the other active funds feature concentrated portfolios, ranging from 29 stocks for the ANZ-OneAnswer strategy (which feeds into the Maple-Brown Abbott fund) to 52 for the Salt product (managed by US firm, Cohen & Steers).
Kernel is also the sole provider to offer a raw, unhedged listed infrastructure fund, although the Maple-Brown Abbott and Magellan products are yoked to the Australian dollar.
The Russell study says while hedged infrastructure funds have delivered “significantly higher” nominal and risk-adjusted returns over the long term despite displaying more volatility than unhedged versions.
Matthew Arnold, Russell NZ head, said the growing listed infrastructure fund choice was a healthy trend but Kiwi investors need to understand the differences between the strategies on offer.