Deep Dive: Infrastructure investors weather persistent volatility as big discounts continue

Sharp discounts abound

Infrastructure investment trusts have experienced significant volatility in the last two years, contrasting with the historical reputation for stability and increasing dividend streams of the asset class. Despite many investment trusts maintaining strong dividends, share prices have been more erratic.

The volatility stems from market participants treating infrastructure trusts like bond proxies, according to Tommy Kristoffersen, manager of the EdenTree Green Infrastructure fund, as they react negatively to news of a higher interest rate environment. Duncan Ball, CEO of BBGI Global Infrastructure, explained that infrastructure trusts are sensitive to interest rate changes, due to their reliance on discounted cash flow methodology for portfolio valuation. This means that rising interest rates also increase capital costs, potentially squeezing project margins. However, the inflation-l...