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Meeting the demand for developed core infrastructure indexes

By: Catherine Yoshimoto, director, product management

In today’s continued low interest rate environment, more investors are taking note of developed market infrastructure and its demonstrated ability to generate a steady income stream. Institutions have traditionally invested in infrastructure through unlisted vehicles, but this type of approach can have its challenges. As publicly traded developed markets infrastructure equities have emerged as an increasingly popular alternative, the FTSE Developed Core Infrastructure Index provides a means to benchmark their returns.

FTSE Russell defines core infrastructure companies as those that own, manage or operate structures or networks used for the processing or moving goods, services, information and data, people, energy and necessities from one location to another. It’s important to note that this definition includes the businesses that provide the means of processing or movement of goods or services—but not the goods or services themselves. Examples of several types of core infrastructure within some key subcategories are outlined below.

Investing in infrastructure via unlisted vehicles has been a common strategy among institutions, but many have found this approach can have its downsides. For one, unlisted vehicles often involve high investment minimums and extended lockout periods, presenting the potential for liquidity challenges. Further, unlisted vehicles tend to be limited in scope, only representing a portion of the infrastructure opportunity set.

Conversely, listed infrastructure equities can offer greater breadth of choice and diversification—as well as transparency, since regulated stock markets are required to provide high levels of disclosure to investors. In addition, the daily liquidity that comes with listed equities can be a material advantage relative to unlisted infrastructure funds, where in some cases investors may have to wait years to redeem their holdings.

A primary reason for increased investor interest in developed core infrastructure is the potential for steady income. Over the time period of January 2010 to September 2018, higher income from infrastructure assets was reflected in the dividend yield of the FTSE Developed Core Infrastructure Index relative to the FTSE Developed All Cap Index. On average, the developed infrastructure index was 90 bps in excess of the broader index over this time period, demonstrating a consistently higher yield.

As interest rates have remained well below historical levels, more investors have looked to listed developed infrastructure equities for this history of steady income generation. To meet this growing demand, the FTSE Developed Core Infrastructure Index offers 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.

As of November 30, 2018, the FTSE Developed Core Infrastructure Index included 145 securities across 19 countries, representing approximately US $1.9 trillion in net market cap.

For a deeper dive on developed core infrastructure and how our indexes are constructed, please read our recently published paper.

 

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