Traditional income is dead, long live alternative income | Blog

By Nick Scullion, Head of Foresight Capital Management

The last 18 months have seen the return of volatility to global equity markets with 2018 seeing two significant corrections in February and October. The issues facing global markets are well documented, with the US/China trade war and slowing economic growth continuing to cloud the horizon.

As a result, traditional sources of investment income are facing structural issues while the alternative income sector is booming as investors seek low volatility solutions in uncertain times. UK Equity Income has been hugely popular with investors throughout much of the last decade. Recent data published by the Investment Association shows that the UK Equity Income sector has delivered 186% growth over the previous 10 years (as at May 2019). However, UK Equity Income is no longer the obvious choice for investors seeking income, as traditional dividend paying equities are likely to remain in a sustained period of volatility due to Brexit related uncertainty and swings in Sterling.

As traditional income products have withered on the vine, a myriad of alternative income products has sprung to market. Investors seeking a regular and predictable income alongside true diversification have to work a bit harder to analyse some of the less well understood asset classes. For those who make the effort, there are still ample streams of income available from asset classes such as peer-to-peer lending, asset leasing, infrastructure, renewable energy and alternative property products like healthcare and social property.

" Infrastructure and renewable energy projects typically benefit from long-dated, inflation-linked cashflows underwritten by the government or another public sector counterparty, characteristics that make the 5%+ net yields in the sector and true diversification a compelling investment proposition."

The challenge investors now face is determining which of these asset classes is best placed to deliver a regular income with the most attractive risk-adjusted returns. The infrastructure and renewable energy asset classes provide investors with characteristics that are largely unavailable elsewhere, and in my view provide opportunities for superior risk adjusted returns compared to other sources of alternative income. Infrastructure and renewable energy projects typically benefit from long-dated, inflation-linked cashflows underwritten by the government or another public sector counterparty, characteristics that make the 5%+ net yields in the sector and true diversification a compelling investment proposition.

Foresight’s award-winning Foresight Capital Management team currently manages two open-ended investment companies with a strong focus on infrastructure, the FP Foresight UK Infrastructure Income Fund (FIIF) and the FP Foresight Global Real Infrastructure Fund (GRIF).

FIIF targets an annual income of 5% through the active management of UK-listed renewable energy and infrastructure investment companies. FIIF has performed strongly since launch and has grown its NAV to over £350 million. This year, Foresight was named Fund Manager of the Year on account of the success of FIIF, an accolade awarded to the best performing fund manager based on published data. More recently, FIIF was ranked the number one performing fund across total return, max drawdown and standard deviation by Citywire Selector on a one-year basis and listed in Fidelity’s ‘Select 50’. In addition, in its first year, the Fund delivered a full-year yield above target at 5.35%.

GRIF was launched in May 2019 following the success of Foresight’s original OEIC in order to meet the growing appetite for physical infrastructure assets, offering investors the opportunity access stable and predictable returns alongside true diversification and attractive risk-adjusted returns.

To learn more about our Foresight’s global infrastructure fund, click here.

Disclaimer:

The value of an investment can fall as well as rise. Investments in smaller unquoted companies are higher risk than investments in larger quoted companies. Investors may not get back the full amount they invest.

Past performance is not a reliable indicator of future results.

We recommend investors seek professional advice before deciding to invest. Foresight is not able to offer investment advice.