I have been looking at Infrastructure ETF’s like Magellan (MICH) and Vanguard (VBLD), after a good run for 6 months they are trading flat of late. Given that interest rates are likely to fall further and remain lower for longer why are they not continuing to trend upward?
A: It is an interesting question. I think it is a function of two factors – firstly, there are other things apart from interest rates that go into the pricing of infrastructure assets, most particularly, revenues. The fall in interest rates has had no impact on the assets’ revenues. Secondly, markets are anticipatory – the move down in intertest rates in the USA started in effect last December when the Fed started using the word “patience”. The move in Australia has been more recent – but remember, these are funds investing in global infrastructure assets.