by Frédéric Blanc-Brude, Tim Whittaker, Simon Wilde
In this paper, we ask whether focusing on listed infrastructure stocks create diversification benefits previously unavailable to investors already active in public markets. We use tests of mean-variance spanning to discover the diversification benefits of portfolios of infrastructure stocks under different definitions of infrastructure investment, and show that expecting the emergence of a new or unique “infrastructure asset class” by focusing on a series of industrial sectors and/or tangible assets is misguided.
We find that such asset selection schemes do not add diversification benefits to existing asset allocation choices, whether these are structured by traditional asset classes or by factor exposures. We also find that defining infrastructure investment in terms of underlying contractual structure, as opposed to industrial sectors, can reveal a very different investment profile, albeit one that only improves the mean-variance efficient frontier since the GFC.
This paper also provides insights into the question of defining and benchmarking infrastructure equity investments in general and to what extent public stock markets can be used to proxy the risk-adjusted performance of privately-held infrastructure investments.
Searching for a Listed Infrastructure Asset Class: Mean-variance spanning tests of 22 listed infrastructure proxies (Frédéric Blanc-Brude, Tim Whittaker, Simon Wilde), In EDHEC Infrastructure Institute Publications, volume June, 2016.