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Building solid returns with developed core infrastructure

By Catherine Yoshimoto, director, product management

At the end of last year, I posted about how FTSE Russell is meeting the rising demand for developed core infrastructure indexes. The continued environment of yield scarcity had a growing number of investors turning to this asset class for its income-generating potential, and our FTSE Developed Core Infrastructure Index gave them a means to benchmark their returns. With the first quarter of 2019 squarely behind us, I took a look at those returns, and over the past year developed core infrastructure has delivered strong performance relative to the broader market.

After an unprecedented stretch of record low volatility, equity markets saw some turbulence during the 12-month period ending March 31, 2019. As shown below, this was particularly true for the fourth quarter of 2018.

However, while the end of last year took its toll across all equity markets, the above graph demonstrates that they promptly bounced back—and nowhere was this more pronounced than in developed core infrastructure equities. In fact, for one year ending March 31, 2019, the FTSE Developed Core Infrastructure Index posted a return of 18.9%, far outpacing broader equity market returns.

It’s also worth noting that while developed core infrastructure, developed equities and broad global equities all ended this time period in positive territory, emerging market equities fell short by a considerable margin. This was one of the key reasons behind developed core infrastructure’s outperformance—as shown below, it is true to its name and composed entirely of equities from developed countries.

Relative to the broader global index, the FTSE Developed Core Infrastructure Index is more heavily weighted in the US and Canada—both of which have posted positive returns over the past year—while it’s underweight in the UK where 12-month returns have been relatively sluggish.

Sector composition can also help explain developed core infrastructure outperformance. As shown below, over half of the FTSE Developed Core Infrastructure Index is comprised of utility stocks. Long considered a safe haven during volatile times, utilities held up well during the market turmoil and were largely spared the end-of-year blow dealt to other sectors. As a result, for the year ended March 31, 2019, the FTSE Developed Utilities Index returned 14.7%, which bolstered the return of the developed core infrastructure index.

The FTSE Developed Core Infrastructure Index continues to offer a benchmark to effectively measure the performance of this asset class. This gives market participants an industry-defined interpretation of infrastructure and is used both as a benchmark for the listed developed markets infrastructure sector and as the underlying performance target of several index-tracking financial products.

 

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