Funds: Buy into the coming infrastructure boom

For investors, massive government stimulus spending is generating some big opportunities. Here's how to get your share of the profits.

Next time you grind to a halt on a busy UK motorway, spare a thought for drivers in other countries. Poor road conditions cost US motorists $67 billion a year in repairs ($333 per driver). Meanwhile, Russia's slapdash road system is robbing the country of about 3% of its GDP, according to government estimates.

But for investors, a wall of government stimulus spending is generating some big opportunities. Governments globally will fork out $35 trillion in public works spending over the next 20 years, according to CIBC World Markets, as they seek to build and repair everything from railway lines and water pipes to airports and high schools.

China alone is spending £88bn on intercity rail lines between 2009 and 2011, while $10 billion is being invested in Africa annually as power stations and mobile phone masts are rolled out across the continent. Investment trusts are one of the best ways to play the infrastructure sector. So it's a pity there are not more UK listed ones to choose from. HSBC Infrastructure (LSE: HICL) is one of the best and "probably boasts the safest set of assets", says the FT's David Stevenson. Up 31% since launching in March 2006, it trades at a small premium to its underlying net asset value.

448_P24_HSBC-infrastructure

Offering a yield of 8.6%, and with 29 of its 30 projects effectively government-backed, it's a decent long-term play. 3i's infrastructure fund (LSE: 3IN) is another solid, albeit riskier, bet.

As well as holding relatively safe UK assets such as an investment in Alpha Schools which has a long-term contract to build and operate 11 schools in the highlands of Scotland it also holds more speculative assets such as a German waste to energy plant. Plenty of cash, a discount to net asset value of 8.6% and a yield of 5.4% all make it attractive. It's up 24.6% year to date. Further up the risk scale, and only for investors willing to gamble on losing capital, there's the Aim-quoted PME African Infrastructure Opportunities Fund (LSE: PMEA). It is more speculative than the other two funds, reflected in a 49% fall since its launch in July 2007 (against a 2.3% drop for the MSCI Emerging Markets Index).

However, it offers investors one of the few ways to access some exciting African plays cheaply. These include TMP Uganda Limited, a broadband provider, and Sheltam Holding, a pan African railway company. On a price/book valuation of just 0.55, the fund could deliver patient investors more upside than most other infrastructure funds.

Recommended

Looking for income? Buy these three solid property funds
Investment trusts

Looking for income? Buy these three solid property funds

Apparent high-yielding bargains often turn out to be value traps. But these three property funds look like solid buys for income investors.
23 Nov 2020
New music-royalty fund will cash in on classic pop hits
Investment trusts

New music-royalty fund will cash in on classic pop hits

The Round Hill Music Royalty Fund, a rival to the well-established Hipgnosis Songs Fund, has just debuted on the London Stock Exchange. David C Steven…
17 Nov 2020
Why investors should take investment trusts up on their free lunches
Investment trusts

Why investors should take investment trusts up on their free lunches

Investment trusts are brilliant, says Merryn Somerset Webb. Perhaps the most brilliant thing of all about them is the fact that investors can meet and…
16 Nov 2020
The MoneyWeek Podcast: Alex Wright on why UK markets are full of opportunities
UK stockmarkets

The MoneyWeek Podcast: Alex Wright on why UK markets are full of opportunities

There are huge opportunities right now in UK stocks, says Fidelity's Alex Wright. Here, he talks to Merryn about value vs growth, the prospect of a va…
11 Nov 2020

Most Popular

The next 20 years: five new technologies on the horizon
Global Economy

The next 20 years: five new technologies on the horizon

What will everyday life be like in two decades’ time? Matthew Partridge peers into his crystal ball.
12 Nov 2020
This week’s rally in value stocks is just the beginning
Value investing

This week’s rally in value stocks is just the beginning

The arrival of a vaccine this week saw huge gains in the markets and investors switching out of big-tech growth stocks and into “value” stocks in more…
13 Nov 2020
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Nov 2020