Covid-19 Market Volatility Spurs Demand For Infrastructure, Say Financial Intermediaries

Covid-19 Market Volatility Spurs Demand For Infrastructure, Say Financial Intermediaries

· More than half of intermediaries believe infrastructure is the asset class most likely to see an increase in demand because of COVID-19
· 75% of intermediaries likely to choose infrastructure to access sustainable income
· 47% say infrastructure is best placed to deliver sustainable income during the crisis

A new study reveals that over half (54%) of financial intermediaries believe that infrastructure is seeing the biggest surge in investor demand among all asset classes in response to the COVID-19 crisis, over twice the number who chose equities (20%) and fixed income (19%).1

According to the research, which was conducted among 112 intermediaries by Foresight Group LLP (“Foresight”), a leading independent infrastructure and private equity manager, almost three-quarters (72%) of intermediaries anticipate their clients’ exposure to infrastructure will increase over the next three years.

Foresight’s study, which is published today as a white paper “Stability in adversity”  highlights the three biggest drivers behind infrastructure’s growing popularity among financial intermediaries: its low correlation to traditional assets (73%); defensive qualities (66%); and low volatility (58%).

Financial intermediaries are turning to infrastructure to generate a sustainable income, according to the study. With total dividend payouts set to be the lowest since 2015, three-quarters (75%) of intermediaries say they are likely to consider using infrastructure within their traditional equity income allocation to access sustainable income during the current economic uncertainty caused by COVID-19, including 24% who say they are ‘extremely likely’.

Nearly half of respondents (47%) say infrastructure is the asset class best-placed to produce a regular income during the current economic crisis caused by COVID-19, ahead of both equities (21%) and fixed income (13%).

The study follows the announcement of FP Foresight Global Real Infrastructure Fund’s first 12 months performance figures.  The Fund achieved a total return of 18.51% over 12 months, outperforming all competing indices over the period.  As well as this, the Fund provided a yield of 4.12% over 12 months, exhibiting lower volatility levels than higher risk asset classes such as high-yield debt.

Nick Scullion, Head of Foresight Capital Management, said: “Advisers recognise that their clients’ portfolios will need to adapt to the new reality if their goals are to be met. They also appreciate the benefits that infrastructure can bring to portfolios in terms of providing stability in the face of market adversity.

“In a fast-changing and challenging environment, investors are increasingly looking towards ‘real’ physical assets to generate reliable, regular income and preserve capital values against inflation risks. Infrastructure is an asset class whose time has come, offering enduring solutions to today’s global challenges.”

Increasing Demand For ESG Integration

There is a growing consciousness worldwide for more consideration to be given to environmental and social issues. This has seen expression in many areas of society, not
least in the global climate movement and the widespread adoption of the UN’s Sustainable
Development Goals (SDGs).

The asset management industry has responded to this movement too, serving growing investor appetite for more sustainable/responsible investing by integrating ESG factors into
investment processes and exercising their voting powers on companies to encourage
more responsible behaviour. This is reflected in our research, which shows 82% of financial
advisers expect investors’ demand for ESG investment strategies will increase this year
versus last year.

A research paper published by Foresight in January this year titled ‘Making Inroads: Challenging preconceptions and overcoming barriers to ESG and sustainable investment’
examined financial advisers’ perceptions of the issues. It showed that advisers appreciate they can play a pivotal role in guiding their clients towards investments in line with this new world of Sustainability and ESG. Research outlined in the paper showed that 64% of advisers now see ESG considerations as important when building portfolios for their clients.

Importantly, more than two thirds (68%) believe that incorporating ESG considerations
into investment strategies does not impact financial returns negatively and 80% regard
investments as being a critical factor in helping the UK to meet net-zero carbon targets.