Contenders: 12 trusts in the infrastructure and infrastructure - renewable energy sectors. And the winner is...
Winner: 3i Infrastructure
3i Infrastructure (3IN) retains this award, with its third year of above-average NAV total returns leaving it well ahead of the field over the stretch. Following two major portfolio realisations in the previous year, there were none in the 12 months to the end of January.
However, most companies in the portfolio made good progress, with some consolidating their positions through acquisitions.
The 33% stake in XLT was substantially revalued in September 2018 as the end of 3IN’s lock-in period approached. Purchased for £61 million in June 2013, it was sold in February 2019 for £333 million.
3IN moved its domicile from Jersey to the UK last year. It is now an investment trust for tax purposes and has a more shareholder-friendly tiered-fee structure. It is very different from the social and renewable energy infrastructure funds, which invest for income in limited-life concessions and offer a higher yield. Instead, 3IN invests for long-term capital and income growth from unquoted operational firms, in which it typically holds controlling stakes. It targets a progressive annual dividend and NAV total returns of 8-10%, which it has more than achieved.
Stakes in eight mid-market companies currently account for 85% of assets. These are involved in areas such as electricity generation from landfill gas, telecoms towers, wind farm maintenance support vessels and ground support equipment for airports. These are expected to be slightly more volatile than 3IN’s former core infrastructure holdings, hopefully offset by greater diversification.
Around half of 3IN’s portfolio is UK-based and most of the rest is in Europe. The manager says his large team is well-positioned to deliver on the trust’s objectives, “with a good portfolio with increased diversification and an interesting pipeline, mostly in continental Europe”.
Managed by Phil White since 2009
3-year NAV total return 57.6%
3-year share price total return 65.2%
Average premium for sector 8.1%
Ongoing charges 6.91% (including performance fee)
Greencoat UK Wind (UKW) is the largest of the renewable energy infrastructure funds and invests exclusively in UK wind farms. It has the best five- and three-year NAV total returns in the renewable energy subsector and its dividend yield is 5.2%, paid quarterly.
Its NAV total returns in calendar 2018 were 16.7%, helped by Greencoat’s decision to extend the assumed life of all its assets from 25 to 30 years. This was controversial but has been mitigated by adjusting discount rates to take account of each wind farm’s differing power price agreements.
Generation was below budget last year due to low wind resources, but this was offset by above-budget power prices. Recent acquisitions have pushed up borrowings, so a share issue could be imminent. Its ongoing charges of 1.4% are on the high side given its large size.