Challenger index fund brand, Kernel Wealth, has published a new study espousing the benefits of global listed infrastructure in an era of rising rates and higher inflation.
The Kernel report, authored by research analyst Chi Nguyen, found listed infrastructure has historically outperformed other global asset classes including broader equities, real estate investment trusts (REITs) and bonds during periods of “higher-than-expected” inflation.
According to the study, infrastructure was the best “inflation hedge” among the four asset classes under review based on data dating back to 2003.
“In addition to its relative performance, Global Infrastructure has shown to deliver more attractive absolute returns than Global REITs, Global Equities and Bonds in periods of rising inflation and inflation surprise,” the report says.
As inflationary pressures build, the Kernel study says investors should explore alternative strategies.
“With broad equities appearing expensive on some valuation metrics in late 2021, raising questions about potential downside risk and lower future return expectations compared to the past decade, the strong historic performance of listed infrastructure in inflationary environments as well as its defensive characteristics make the asset class appealing,” the paper says. “Also, from a valuation perspective, global infrastructure appears attractive relative to that of broader equities. These indicators would signal potential for a period of outperformance by listed infrastructure.”
The Kernel study follows the group’s earlier analysis of REITs, joining a growing list of industry literature on the increasingly popular asset class and real assets in general.
For example, Salt Funds Management rolled out a real asset series last year examining the role of infrastructure and property under differing economic conditions.
And global listed infrastructure, in particular, has attracted a lot of attention over the last couple of years with a number of new, or restructured, products offered in the NZ market including from Salt, Kernel and First Sentier (established as portfolio investment entity last year).
Other managers including AMP Capital NZ (about to switch to Macquarie branding), Magellan, Mercer, Maple-Brown Abbott and Russell Investments also have listed infrastructure strategies with typically institutional investors.
In fact, the Kernel infrastructure fund – launched in mid-2020 – is the manager’s most successful product by far to date, accruing about $114 million as at the end of last year.
Overall, Kernel, founded by Dean Anderson and Stephen Upton in 2019, reported more than $200 million under management across its 11-product suite by December 31. The company now employs about 25 staff.
The digital-first investment manager offers a mixture of core index products such as NZ and global equities as well as specialist thematic and ‘green’ funds.
Anderson said Kernel was considering a number of other strategies.