• About
    • Association Information
    • National Council
    • State Organisers
    • Member Benefits
  • Contact
  • Sponsorship
  • Join Now
  • Members Login
  • Search
  • Events
  • Webinars
  • Magazine
  • Education
    • Investment Basics
    • Fixed Income
    • Shares
    • Property
    • Other Investments
    • Portfolio Management
    • Borrowing
    • Superannuation
    • Estate Planning
  • Videos
    • Past Webinars
    • National Conference
    • State Meetings
  • Advocacy
  • Members
  • Log in
  • Search
  • Menu

  1. Home
  2. Magazine
  3. Defensive Equity: Listed Infrastructure vs Property REITs

Defensive Equity: Listed Infrastructure vs Property REITs

By Ursula Tonkin & Ayaz Memnon
Posted on 15 December 2019 — 04:07am in Equity, Infrastructure, REIT

  • Facebook
  • Twitter
  • LinkedIn
  • Email

When most Australians think of defensive assets, they think cash or maybe fixed income. But there are other defensive alternatives that have offered higher returns than even global equities with, very importantly, relatively less risk than global equities.

Global listed property REITs and listed infrastructure are considered defensive, income-generating equities, offering a high dividend yield, underpinned by stable inflation-linked cash flows, and diversification from global equities. They are, essentially, a more liquid proxy for real assets.

Core infrastructure assets, such as electricity grids and toll roads, have reliable and predictable cash flows, with inflation-linked revenues. Investors in global listed infrastructure, particularly listed core infrastructure have enjoyed superior risk-adjusted returns relative to global listed property REITs over the past decade.

In addition, core infrastructure provided better downside protection in falling equity markets as well as better diversification to global equities than listed property stocks.

Listed property and listed infrastructure have different risk and return profiles, so allocation to these assets should be considered separately, and there is room for both in a diversified portfolio.

Similarities and differences

Listed infrastructure and listed property are mature and deep markets with a market capitalization equivalent to approximately 10% of the MSCI World Index - the global equity index representing the largest 1,632 stocks across 23 developed markets. Both provide predictable, inflation-linked cash flows that are a good diversifier due to their relatively low correlation to global equities.

Risk and returns

While listed property has performed strongly over the past decade, listed infrastructure has outperformed, particularly core infrastructure, when looking through lenses such as return, volatility, and downside protection.

“Listed property and listed infrastructure have different risk and return profiles”

Dividend yield

For investors seeking income, listed property provides a consistently higher dividend yield compared to listed infrastructure and global equities. Many listed property companies are required to pay most of their income in distribution to their shareholders and thus have very high payout ratios.

During the period from 2006-2018, listed real estate companies generated 65% of their total returns from the income component.

Downside protection

All asset classes experienced massive drawdowns during the GFC. But for core infrastructure, the magnitude of negative returns was smaller, and the recovery time quicker, compared to other asset classes. Listed infrastructure dropped 31% from its peak to trough during the GFC and took 22 months to recover. Global equities lost 51% of their value and took nearly four years to recover. But the listed property sector suffered the biggest drawdown, dropping 68% from its peak and taking more than five years to recover.

Diversification

Diversification is one of the key considerations for long-term investors when investing in real assets. Defensive equities like listed property and listed infrastructure can reduce overall portfolio risk if they are sufficiently diversified from global equities. Otherwise, they will simply add more equity beta to the portfolio. For infrastructure, this is why applying a clear and consistent definition is so important, and not straying into more industrial and infrastructure-like sectors.

Equity market beta

Infrastructure stocks have consistently maintained a beta of less than 0.6 in our analysis, meaning they are less volatile than the overall equity market. In contrast, property REITs have a long term average beta of 0.9 and carried a beta greater than one in the aftermath of the GFC until 2013, with this now dropping to below one.

Conclusion

With many forecasters expecting market volatility to increase into 2020 and beyond, the defensive characteristics of listed infrastructure and listed property are appealing. Listed infrastructure, in particular, has consistently outperformed global equities over the past decade. There are, however, different definitions of what ‘infrastructure’ is, and investors with a focus on the defensive characteristics should consider looking for ‘core’ or conservative definitions. Given the less than perfect correlation between listed property and listed infrastructure, there is certainly room for both in an investor’s diversified asset portfolio.

Ursula Tonkin (Portfolio Manager) & Ayaz Memnon (Portfolio Analyst), White helm Capital

Post your comment

We welcome comments as long as they're respectful, on topic and not defamatory. It may take a day or so to approve them.

Comments

No one has commented on this page yet.

Popular Articles

  • 2023 dividend outlook: Ausbil
  • Investing outlook 2023: Sticky inflation, volatility and liquidity withdrawals
  • The changing state of Australians’ finances
    by Savvy
  • Investors regaining confidence in retirement wealth
  • Can active lending drive property market confidence?
    by AltX

Subscribe to Investors Voice Magazine

AIA Investorvoice TIPT Aug 300x250 1 v2
Advertisement
Advertisement
Advertisement

Lucy PercyFive variations to a testamentary trust for you to consider

Testamentary trusts are important to consider in estate planning. They can only be created by being included in a Will prior to death (it’s either in there or not, there are no second chances to add it in later).

Last year the AIA worked with lawyer, Lucy Percy of Head & Heart Estate Planning who delivered a series of articles and a webinar on estate planning and testamentary trusts which was exclusive to members.

Subscribe to our newsletter now and find out the five variations to a testamentary trust Percy suggested that you might like to consider.

Don't show this form again

By entering your details here you are agreeing to receive our monthly newsletter, Investors Voice and other partner promotions.

Subscribe to Investors Voice Magazine

Stay up to date with our latest news, education and events

  • About
  • Contact
  • Sponsorship
  • Join Now
  • Facebook
  • Twitter

Events
  • Upcoming webinars
Webinars
  • Past Webinars
Magazine
  • Investing
  • Shares
  • Property
  • Bonds
  • Cryptocurrency
  • Diversification
  • Superannuation
  • Financial Planning
  • SMSF
  • Economics
  • Stock Picking
Education
  • Investment Basics
  • Fixed Income
  • Shares
  • Property
  • Other Investments
  • Portfolio Management
  • Borrowing
  • Superannuation
  • Estate Planning
Videos
  • Past Webinars
  • National Conference
  • State Meetings

25 Years
  • Disclaimer
  • Privacy
Copyright © 2023 Australian Investors Association
ABN: 75 052 411 999
  • Home
  • About AIA
    • Association Information
      • AGM Details
      • Constitution and ByLaws
    • National Council
    • State Organisers
    • Member Benefits
  • Events
    • Upcoming webinars
  • Webinars
    • Past Webinars
  • Education
    • Investment Basics
      • Budget Basics
      • Net Worth
      • Psychology of Investing
      • Investing Goals
      • Risks
      • Power of Compounding
      • Investment Structures
      • Asset Classes
      • Glossary of Terms
    • Fixed Income
      • Savings Accounts
      • Term Deposits
      • Cash Management Trusts
      • Interest Rate Securities
        • Government Bonds
        • Corporate Investments
    • Shares
      • Understanding Shares
        • Common Terms
        • Risks & Benefits
        • Shareholder Rights
        • Types of Shares
        • ASX Sectors
      • Getting Started
      • Mechanics of Investing
        • Choosing a Broker
        • Making an Investment
        • Initial Public Offering ( IPO )
        • Corporate Actions
      • Fundamental Analysis
        • Fundamental Analysis Basics
        • Fundamental Investing Strategies
      • Technical Analysis
        • Technical Analysis Explained
        • Technical Analysis Tools
      • Exchange Traded Funds (ETFs)
      • Derivatives
        • Warrants
        • Contracts for Difference (CFDs)
    • Property
      • Residential Property
      • Commercial Property
      • Real Estate Investment Trusts
      • Property Syndicates
    • Other Investments
      • Managed Funds
      • Hedge Funds
    • Portfolio Management
    • Borrowing
    • Superannuation
      • What is Superannuation?
      • Types of Funds
      • SMSF
    • Estate Planning
      • Wills
      • Powers of Attorney
      • Testamentary Trusts
  • Magazine
  • Advocacy
    • The Retirement Income Review
  • Members
    • Frequently Asked Questions
  • Sponsorship
  • Contact
  • Join Now
  • Policies
    • Privacy Policy
    • Disclaimer