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.
IT has been a tough period for the various infrastructure investment trusts, with higher interest rates reducing the attractiveness of their future cash flows and adding to the cost of borrowing. Some of these funds may now offer a decent long-term buying opportunity, with a prime example being the £3bn International Public Partnerships (INPP), which is a member of Fidelity’s Select 50.
INPP aims to generate stable, inflation-linked returns, based on growing dividends and the potential for capital appreciation. In order to do this it has built up a substantial and diversified portfolio of investments in areas such as: schools, energy transmission, gas distribution, health, housing, transport and waste water.
In a recent trading update the management said that the quality and long-tenor of the fund’s assets provide a high level of predictability to the operational cash flows. Many are underpinned by regulated or contracted government-backed revenues and most are linked to inflation, with each 1% increase in prices expected to add 0.7% to portfolio returns.1
The recent news about the financial difficulties being experienced by Thames Water created some uncertainty for the fund, which has a material investment in Tideway, London’s ‘super-sewer’. However, Tideway is a completely separate company to Thames Water, with a bespoke regulatory arrangement and a permitted rate of return on capital that is fixed until 2030.2
International Public Partnerships 5-year price performance chart
Source: Yahoo Finance from 30.8.18 to 29.8.23 Basis: Share price in GBP. Excludes initial charge.
Past performance is not a reliable indicator of future returns
Since its initial public offering (IPO) in 2006, International Public Partnerships has delivered average annual dividend growth of around 2.5% and has managed to increase the distributions for 15 consecutive years. Please note this is not guaranteed. The projected cash receipts from the portfolio would allow it to continue to meet its existing progressive dividend policy for at least the next 20 years.3
For 2023 and 2024 the fund has set dividend targets of 7.93 and 8.13 pence per share respectively. At the current price this gives the company an attractive fully covered prospective yield of around 6%.
INPP is trading at a material 21% discount to NAV and both the Board and Investment Adviser are considering a number of ways to address this. These include: selling specific investments to reduce debt, share buybacks and a review of the dividend policy.
A key concern has been the impact of the rising cost of borrowing, but the broker Investec says that the fund’s short-term debt is now just 3.5% of the NAV following a recent disposal, with further possible sales likely to follow.
More on International Public Partnerships
Five-year performance table
|
(%) As at 12 Sept |
2018-2019 | 2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 |
|---|---|---|---|---|---|
| International Public Partnerships | 9.1 | 4.3 | 10.6 | 2.4 | -18.4 |
Past performance is not a reliable indicator of future returns
Source: FE, as at 12.9.23 Basis: Total returns in GBP. Excludes initial charge.
1 Numis Investment Companies Research, 26.7.23
2 Numis Investment Companies Research, 30.6.23
3 Investec, 26.7.23
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The shares in International Public Partnership 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. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. 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.
Share this article
Latest articles
Is it time to sell the Magnificent 7?
Higher for longer interest rates risk derailing the stocks’ success
Tom Stevenson
Fidelity International
26 April 2024
Fidelity China Special Situations PLC: update from Dale Nicholls
April marks the 10th anniversary of Dale leading the trust
Nafeesa Zaman
Fidelity International
26 April 2024
The 3 new “lump sum” pension allowances you need to know about
What the scrapping of the old lifetime allowance means for you
Emma-Lou Montgomery
Fidelity International
26 April 2024
