Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

INFRASTRUCTURE is one of the best ways to inflation-proof your portfolio with HICL being a prime example. The investment trust has one of the highest levels of inflation-linkage in the sector with its revenues rising by around 0.8% for every 1% increase in prices.1

HICL aims to deliver a long-term, sustainable income from a diversified portfolio of investments in core infrastructure. It owns more than 100 different assets that are collectively worth in excess of £3bn, the majority of which are located in the UK, with the rest in the EU and North America.

Key holdings include: public buildings like schools and hospitals; demand-based infrastructure such as toll roads, rail links and tunnels; as well as regulated assets, most notably Affinity Water, the largest water company in the UK. The one thing that they all have in common is that they generate strong and predictable long-term cash flows that are normally contractually linked to inflation.

Manager Edward Hunt says that HICL’s portfolio has been deliberately positioned to offer strong inflation protection, lower volatility when compared to equity markets and an attractive, predictable yield. These are valuable characteristics in a world of high inflation and stock market uncertainty.

Last year’s dividend of 8.25 pence per share will be maintained in the current financial year to the end of March 2023, as well as the year after. This gives the shares an attractive prospective yield of 4.8% with quarterly distributions. Please note this yield is not guaranteed and will fluctuate.

Numis says that the reason that the dividend is not being increased over this period is to enable the trust to rebuild its dividend cover − the amount by which the earnings exceed the distributions − in the wake of the pandemic. On a more positive note, if inflation exceeds the forecast then this would translate into a higher net asset value.

HICL Trust share price chart

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Source: Yahoo Finance from 19.7.17 to 19.7.22 Basis: Share price in GBP. Excludes initial charge.

HICL has built up a solid performance record since its launch in March 2006 with an average share price total return of 9.1% per annum (including dividends) over the 16 years to the end of March 2022. Please note past performance is not a reliable indicator of future returns. The predictable nature of the cash flows means that it tends to be a lot less volatile than the wider stock market.

Investec says that HICL has an integral role to play in diversifying portfolio returns and have recently reiterated their buy recommendation. They draw attention to the high inflation-linkage of around 80% and note that the company is well placed to benefit from the current inflationary backdrop.2

More on HICL

Five year HICL Infrastructure Investment Trust

(%)
As at 30 June
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022
HICL -5.2 16.2 13.6 0.7 9.0

Past performance is not a reliable indicator of future returns

Source: Morningstar from 30.6.17 to 30.6.22 Basis: Total returns in GBP. Excludes initial charge.

1 Numis, 25 May 2022
2 Investec, 25 May 2022

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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