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Road to nowhere
Infrastructure and renewable energy investment trusts appeared to be tailor-made for risk-averse income investors – by holding stable , cash-generative assets backed by governments or large institutions , it looked as if all you needed to do was buy in and watch your dividends accumulate . Better still , the assets these trusts own often have some sort of link to inflation , so shareholders could have been forgiven for thinking they didn ’ t have to worry about the surge in prices . However , as the yield on a 10-year gilt moved from 1 % at the start of last year to just under 4 % today , infrastructure and other alternative income trusts have looked less attractive in comparison , and many have moved from significant premiums to hefty discounts . Does this present a buying opportunity for savvy investors , or are these sectors structurally challenged ?
Running scared Investment Trust Newsletter publisher Andrew McHattie notes that alternative assets were meant to improve diversification and reduce risk . However , as interest rates started climbing , “ valuers all took fright at once ” and marked down net asset values which are linked to discounted future cashflows , as these are now being discounted at a higher rate . Share prices have been pushed down well below stated NAVs , which McHattie says are now treated with some scepticism or regularly thought of as being behind the curve . Of the 21 renewable infrastructure trusts on his list , 19 have moved from premiums to discounts .
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