Listed infrastructure funds look increasingly attractive. Their shares have been knocked back by higher gilt yields, which have risen due to fears of a short-term energy-price shock. However, the medium-term disinflationary story is intact owing to a weaker job market, while prospective yields of 4%-7% for the infrastructure funds are much more appealing than gilts themselves, which face the risk of a fiscal crisis.
In contrast to the renewable-energy trusts – which are struggling to sell assets to pay down debt or finance dividends – the infrastructure funds continue to perform well operationally. They have moved away from public-private partnership (PPP) projects into moderately higher-risk, but also higher-return investments. Dividends are both sustainable and increasing, asset sales are enabling both share buybacks and new investment, and net asset values (NAVs) are rising.
Discounted infrastructure funds to buy now
3i Infrastructure (LSE: 3IN) suffered a rare setback last year when it wrote down its investment in German internet provider DNS:NET to zero, knocking £200 million off its net asset value. DNS:NET's business plan relied on new equity and debt to fund its roll-out plan and 3IN was clearly not prepared to step in if others weren't willing to invest more. However, the subsequent sale of TCR, the largest independent lessor of airport ground equipment, at a 22% premium to its last valuation, revived sentiment.
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TCR had been 3IN's largest investment, accounting for 26% of NAV. The proceeds have been used to repay debt, make a new investment (Lefdal Mine Datacentre in Norway) and still leave £200 million of net cash for investment or share buybacks. The shares are now trading on an 11% discount to NAV and a dividend yield of 3.7%.
Sentiment towards HICL Infrastructure (LSE: HICL) has not recovered from a misguided attempt to merge with the Renewables Infrastructure Group, another trust run by the same manager. The shares still trade on a 19% discount to NAV and yield 6.5%.
HICL has recently sold its stake in the A63 motorway in France for £311 million, at a 21% premium to book value. Some analysts have complained about its decision to reinvest £52 million to increase its stake in Cross London Trains, which owns the rolling stock for the Thameslink network, rather than using it all to buy back shares. However, this looks like a low-risk investment in a familiar asset at a knock-down price, while available cash still leaves plenty of scope for buybacks.
International Public Partnerships (LSE: INPP) reported solid results, yet the shares still trade on a 12% discount and yield 6.4%. Investors may be rattled by its £254 million commitment to invest in the Sizewell C nuclear-power station, but INPP has a good record in large projects such as the Tideway super sewer under the River Thames, Cadent gas distribution and North Sea energy-transmission assets.
Pantheon Infrastructure (LSE: PINT) appears more expensive than its peers, on a discount of 9% and yielding 3.7%. Still, its 2025 investment return of over 14% was the strongest. The trust sold its stake in US power business Calpine (its first disposal since listing in 2021) and made a new investment in Intersect that was very quickly followed by the sale of some of Intersect's assets to Alphabet. The maturing portfolio fully covered the dividend for the first time.
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