As interest rates come down, the search for yield intensifies, and one of the sectors most interesting to income-oriented investors is infrastructure. The listed infrastructure sector can be a source of relatively strong and stable income flows, with generally predictable long-term cash flows and earnings.
In theory, infrastructure assets generate a long-term cash flow with a high yield and little volatility. Prior to the GFC the listed infrastructure sector was considered one of the best defensive sectors, but the sector has had to re-earn its stripes.
The credit crunch took an especially hard toll on listed infrastructure, as entities perceived to have high debt levels were hammered. For example, ports, road, rail and airports operator Asciano (AIO) fell 96% from peak to trough. The carnage was indiscriminate: Hastings Diversified Utilities Fund, now a part of pipeline operator APA Group (APA), lost 93%, even though it was regarded as one of the higher-quality members of the infrastructure sector, with assets including gas pipelines in Australia and water utilities in the UK, and a relatively high dividend yield funded from cash flow.