VanEck Vice President, Intermediaries, Damon Gosen talks the case for investing in global infrastructure, the VanEck Vectors FTSE Global infrastructure (Hedged) ETF (ASX:IFRA), its composition and how it provides investors with exposure to essential infrastructure services.
Jessica Amir: Hello I’m Jessica Amir for the Finance News Network. Today I’m with VanEck’s Damon Gosen. Damon, thanks for coming and welcome back.
Damon Gosen: Thanks for inviting me back Jess.
Jessica Amir: First up for those who don’t know, VanEck is a leading provider of ETF’s globally and in Australia. So how is the business progressing today?
Damon Gosen: We’re really pleased with how the business is progressing. As you know, VanEck is a global firm, so we’ve been in business since 1955. We’re one of the largest ETF providers globally. We listed our first ETFs in the Australian market about five years ago. We’re doubling in size every 12 months and continuing that growth rate, which is excellent. We now have 17 ASX listed ETFs. We’ve got very strong track records across those funds and really good research ratings.
Jessica Amir: Before we talk about your offering and one of those ETFs in a little more detail. Maybe you can tell us about the case for investing in infrastructure, and what infrastructure assets actually are?
Damon Gosen: Infrastructure represents a wide variety of assets. So things like toll roads, airports, railways, power generators, other utilities like electricity, water and gas as well. Revenue for infrastructure assets comes from a variety of sources as well. So for things like airports and railway operators, you are looking at revenue that’s actually linked to economic activity. So as traffic increases, so too will revenue, for toll roads it’s often inflation adjusted revenue. And for utilities, like power and gas and water, it’s actually regulated by government. So as costs rise, so too will revenue.
Jessica Amir: What are the benefits of investing in infrastructure, as well as global infrastructure?
Damon Gosen: Infrastructure assets tend to have lower volatility than traditional equities. And also a low correlation to other asset classes, meaning it’s a great portfolio diversifier. The second reason for investing in infrastructure is their income property. So you’ve got really strong, consistent and typically growing income coming through from infrastructure assets, as well. The third case is about government investment globally in infrastructure. So that’s a major tailwind to the broader sector and the companies within the sector.
Jessica Amir: Now to your VanEck Vectors FTSE Global Infrastructure (Hedged) ETF. What should investors know?
Damon Gosen: We provide investors simple and easy to access exposure to 150 infrastructure securities globally, through our VanEck Vectors FTSE Global Infrastructure (Hedged) ETF, or IFRAis the ASX code. IFRA tracks the well-regarded market benchmark for global infrastructure. It’s a capped index, meaning that there’s a cap put on in individual sectors that are over represented, in the broad market.
So typically, utilities make up about 70 per cent of most infrastructure indexes. The index we’re tracking puts a 50 per cent cap on that index. There’s 50 per cent to utilities, 30 per cent to transport and 20 per cent to other infrastructures sectors, like pipelines, to give a really broad representation of the global infrastructure universe.
Other things regarding our IFRA is its very low management cost, it’s0.52 per cent per annum, which is a fraction of the costs of active managers in this space. And I should point out that this is an asset class, where active managers have a very poor track record on average, of outperforming this index over time.
So there’re around 150 companies in the index. Some of the largest holdings are companies like Transurban (ASX:TCL), NextEra Energy (NYSE:NEP), Atlantia (OTCMKTS:ATASY), American Tower Corp (NYSE:AMT). From a country perspective, it’s very well diversified. The largest country exposure is the US at around 50 per cent. But it’s probably worth noting, that these are companies that are domiciled in America, that are operating infrastructure projects on a global basis.
Jessica Amir: What can you tell us about performance?
Damon Gosen: We’ve seen a lot of uptake of IFRA of late, as investors and advisors have sought the relative defensiveness of the asset class. Obviously there’s been a lot of market volatility. So three months through to the end of November, saw the Australian market fall about nine per cent, it saw US equities down about six per cent. In that time period, IFRA was actually up, it was up around one per cent. If you look out over three and five years, the index is around 10 per cent per annum.
Jessica Amir: What are the risk return characteristics of the index?
Damon Gosen: Infrastructure typically is lower volatility than equities. The correlation against other asset classes is quite low, meaning it’s a great diversifier. From an income perspective, it’s very strong, so IFRA has a current yield of around 3.8 per cent.
Jessica Amir: How can investors access this opportunity?
Damon Gosen: Being an ETF and listed on the ASX, it’s very easy, so one trade under the code IFRA, or IFRA. IFRA is available on most platforms, given its size, its track record and its very strong research ratings.
Jessica Amir: Lastly Damon. What’s your final message for investors today?
Damon Gosen: I’d strongly urge investors and advisors to consider an allocation to global infrastructure. Very strong income property, so IFRA is yielding 3.8 per cent at the moment. It’s typically our lower volatility asset class, with a lot of correlation to other asset classes. Meaning you’ll diversify your portfolio really nicely. The government spend on infrastructure is a major tailwind for the sector as well.
What we actually often find, despite all these positives, is that infrastructure is actually an asset class that a lot of investors don’t have in their portfolios. What we’re about at VanEck is providing investors intelligently designed solutions, to asset classes that we think they should have in portfolios, that are typically under represented.
Our Global Infrastructure ETF, IFRA is a great example of this, it’s very low cost, it’s transparent, it’s physically backed. And a great way of getting diversified exposure to 150 leading infrastructure stocks globally.
Jessica Amir: Damon Gosen, thank you so much for your time and for the introduction to your infrastructure ETF.
Damon Gosen: Thanks very much Jess.