Investors are turning to infrastructure investments like solar and wind energy as political and economic headwinds including Brexit and the US China trade war hammer global markets, according to research by Foresight Group.
The UK infrastructure specialist interviewed 200 financial advisers and found that nearly two thirds of them expect their clients to invest more in infrastructure over the next three years as fear over sliding stock markets grows.
This is a dramatic increase from just 32 per cent of advisers favouring infrastructure at the same time last year, which the firm says reflects rising demand for safer, more long-term investments.
More than 75 per cent of advisers said they were looking at infrastructure as a way to invest outside of main markets and thereby protect their investors’ capital. More than a third also cited Brexit as a direct reason for their interest in infrastructure.
Infrastructure not only produces stable returns, but mitigates many of the threats looming into view
Mark Brennan, fund manager at the Foresight Group, said: “Continuing market volatility and clients’ overexposure to traditional asset classes such as equities and fixed income have given rise to a dramatic shift in sentiment towards infrastructure.
“With an increasing number of infrastructure funds accessible to retail investors entering the market, the opportunity is there for advisers to diversify client portfolios into an asset class that not only produces stable and predictable returns, but mitigates many of the threats looming into view.”
Sliding stock markets
Over the past year both the UK and US markets have suffered heavy losses as investors have headed for the hills, with the UK’s FTSE 100 index shedding 11 per cent over the year to 11 January and more than 16 per cent from peak to trough between May and December.
In the US, the Dow Jones Industrial Average shed 18 per cent of its value between January and December 2018, and close to 10 per cent for the year to 11 January 2019.
As a basis for comparison, UK and US markets lost around 30 per cent during the global and financial crisis of 2008/09.
This volatility has hit private investors hard; particularly those invested heavily in main markets through passive index trackers and mainstream domestic and global investment funds.
90 per cent of advisers expect main market turmoil to continue this year
Foresight’s survey shows advisers expect this to continue – with more than 90 per cent of respondents expecting further slides in UK and global markets, while three quarters are worried about rising interest rates at home and abroad.
Renewables protect environment AND capital
However, as global markets have tanked, funds invested in infrastructure and renewable infrastructure have surged.
Over the past 12 months, funds invested in the Association of Investment Companies’ infrastructure sector returned an average of more than 14 per cent, while renewable infrastructure funds returned 9 per cent.
Top performing renewable infrastructure funds
|Fund||1yr % total return||3yr % total return||5yr % total return|
|1||The Renewables Infrastructure Group||13.22||37.2||53.14|
|2||Bluefield Solar Income Limited||11.42||40.46||64.46|
|4||Greencoat UK Wind||10.22||40.06||64.63|
|5||John Laing Environmental Assets||6.78||25.17||n/a|
All data is sourced from FE Analytics and is correct to 11 January. The total share price return does not include fees and charges.
The top performing renewable funds were The Renewables Infrastructure Group, which returned more than 13 per cent in share price growth over the past year. This was closely followed by Bluefield Solar and one of Foresight’s own funds – Foresight Solar – each of which delivered 11.4 per cent and 10.5 per cent, respectively.
Fossil fuel funds crash
This compares to average losses of more than 5 per cent for funds invested in the main UK All Companies sector and close to 4 per cent for funds in mainstream global companies (the AIC Global sector).
Among the worst performing funds of the year, however, were those in the Commodities and Natural Resources sector – i.e. oil, gas, coal and mining – which shed an average of nearly 17 per cent over the year. The worst of these was the RDP Global Resources, which lost nearly 70 per cent in the 12 months to 11 January.
Funds invested in oil, gas, coal and mining lost an average of 17 per cent last year
The latter reflects a steep fall in the price of oil over the year, driven by over supply as many oil producing nations refuse to turn the taps off despite shrinking global demand.
This environment is likely to provide further supportive for renewables, with countries across the globe continuing to pledge and enhance support for renewable energy in the fight against climate change.
To find out how you can invest in renewable energy, see Good With Money’s latest series produced in collaboration with MINT Selection: “How to Invest in Renewable Energy”