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Is infrastructure pessimism overdone?

Infrastructure trusts endured a hefty sell-off last month. But today's discounts could be tomorrow's opportunities
July 21, 2023

In most major economies, investors seem quietly confident that inflation has peaked. The proof is in government bond markets, where yields have started to stabilise in the past few months. Until recently, the UK had been a glaring exception. 

Earlier this month, the UK sold a bond at auction with an annual return of almost 5.7 per cent – the highest yield recorded in 16 years. Investors were effectively demanding greater returns in anticipation of sticky inflation and further rate hikes by the Bank of England.  

Rising gilt (UK government bond) yields have been bad news for listed infrastructure trusts, despite their reputation as safe-haven holdings and in some cases their inflation-linked revenues. This is because an increased rate of return on government bonds – thought to be the most secure of all asset classes – forces discount rates up. This in turn erodes a trust's net asset value (NAV). 

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