EDHECinfra Announcement
2019Q4 Index Release: Up on the Year, Down on the Quarter
Publication date: 2020-01-16

Unlisted infrastructure equity gave back some of the year’s gains in the final quarter of 2019 as rising bond yields curbed DCF valuations. Despite lower risk premia, performance was also tempered by flat average revenue growth.

The EDHECinfra Global Unlisted Equity Index fell 2.58% to 5228 points by year end, though that still represents a year-on-year gain of 14.06%. The average global infrastructure equity premium is now slightly less than 5%, down from 5.5% two years ago and 8-9% before 2012.

The 16-year duration of the index highlights the exposure of infrastructure companies to interest rate risk. After several quarters of declines, many markets saw long term rates heading upwards in Q4. Long-term UK yields climbed by some 40bp, 25bp in the US, more than 50bp in the Eurozone and 25-50bp in Australia.

Broad Market Unlisted Infrastructure Equity Performance (local returns)
current quarter current annualised 1-year 3-year 5-year 10-year Inception
Total Returns -2.58% -9.95% 14.06% 7.55% 7.41% 12.56% 10.37%
Excess Returns -3.04% -11.61% 13.1% 7.06% 6.7% 11.63% 7.7%
Volatility 8.745% 17.489% 17.101% 17.463% 17.552% 15.718% 14.679%
Sharpe Ratio -0.348 -0.664 0.766 0.404 0.382 0.74 0.525
Value-at-Risk 25.11% 55% 29.99% 37.43% 37.8% 27.93% 27.44%
Broad Market Unlisted Infrastructure Equity Index (2019Q4)

The infrastructure sectors most exposed to interest rate risk are dominated by large, long-lived corporates (TICCS-GC2). New Zealand companies also struggled, representing six out of the bottom 10 performers. Some 10 out of the bottom 20 were regulated utilities and airports.

Strong performers were supported by cash flow growth or their more robust, contracted business model (TICCS-BR1/CG1). For instance, the IH-635 Managed Lanes Project in the US showed both a steady increase in revenues, yielding Q4 returns of 1.4% (5.6% pa), reflecting the more robust performance of the contracted project segment of the market.

Merchant infrastructure companies (TICCS-BR2) experienced more varied fortunes, with airports seeing lower revenue growth (4.5% globally vs 7% two years ago). In the case of the Auckland Airport, this led to an impairment and strongly negative returns in Q4.

Other mostly merchant projects, such as independent power producers (TICCS-BR1/IC1010) and road companies (TICCS-BR1/IC6050) performed well, as their relatively higher risk premia more than compensated for higher long-term yields in many markets. Revenue growth also continues to increase in the power sector and on average now tops 2%. In the road sector, meanwhile, it is decreasing but still stands at an average of about 3% pa.

Some regulated water utilities (TICCS-BR3/IC8040) also made the list of worst performers: Affinity Water returned -3.6% in the quarter. South East Water also slumped -3.6%, primarily due to the effect of the rate increase on our DCF models. (See 2019Q4 Index Release (Erratum))

True to form, almost all the best returns in Q4 came from Emerging markets. Brazilian and Filipino companies, were amongst the top performers, aided by higher risk premia and a series of central bank rate cuts.

Full release accessible at https://indices.edhecinfra.com


Release notes:

We also made some tweaks to the calculation of the indices in response to requests from investors. These bring them into better alignment with industry standards:

1)     Model updates:

Based on consistent feedback, the debt index constituents are now incorporated at an instrument level. Each senior debt instrument is priced individually and is now a constituent in the index. This change brings EDHECinfra’s methodology into line with other debt indices in the industry. The new approach differs from previous versions when all senior debt of a company was considered as one unit of account.

2)     Calculation updates:

Some of the senior debt instruments draw down over time and, hence, EDHECinfra has improved the price return calculation to reflect the outstanding principal at every point in time.

3)     Data changes:

a.      More observed equity transaction prices have been added to improve the accuracy of calibrating risk premiums to market prices. An extensive validation of historical transactions has also refined the quality of past data.

b.      More than 200 company account have been updated in this quarter.

c.      EDHECinfra has increased the coverage of observed risk-free rates in terms of maturities and countries, using government bonds wherever possible or other proxies. This has enhanced the forecast of interest rate curves at different points in time in the history, which is one of the key elements of EDHECinfra’s asset pricing approach.

Do NOT follow this link or you will be banned from the site!

DISCLAIMER

  • The information contained on the EDHECinfra website (the “information”) has been prepared by EDHECinfra solely for informational purposes, is not a recommendation to participate in any particular investment strategy and should not be considered as an investment advice or an offer to sell or buy certain securities.

    All information provided by EDHECinfra is impersonal and not tailored to the needs of any person, entity or group of persons. The information shall not be used for any unlawful or unauthorised purposes. The information is provided on an “as is” basis.

    Although EDHECinfra shall obtain information from sources which EDHECinfra considers to be reliable, neither EDHECinfra nor its information providers involved in, or related to, compiling, computing or creating the information (collectively, the “EDHECinfra Parties”) guarantees the accuracy and/or the completeness of any of this information.

    None of the EDHECinfra Parties makes any representation or warranty, express or implied, as to the results to be obtained by any person or entity from any use of this information, and the user of this information assumes the entire risk of any use made of this information. None of the EDHECinfra Parties makes any express or implied warranties, and the EDHECinfra Parties hereby expressly disclaim all implied warranties (including, without limitation, any implied warranties of accuracy, completeness, timeliness, sequence, currentness, merchantability, quality or fitness for a particular purpose) with respect to any of this information.

    Without limiting any of the foregoing, in no event shall any of the EDHECinfra Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits), even if notified of the possibility of such damages.

    All EDHECinfra Indices and data are the exclusive property of EDHECinfra. Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results. In many cases, hypothetical, back-tested results were achieved by means of the retroactive application of a simulation model and, as such, the corresponding results have inherent limitations.

    The Index returns shown do not represent the results of actual trading of investable assets/securities. EDHECinfra maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of these fees and charges would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. Back-tested performance may not reflect the impact that any material market or economic factors might have had on the advisor’s management of actual client assets.

    The information may be used to create works such as charts and reports. Limited extracts of information and/or data derived from the information may be distributed or redistributed provided this is done infrequently in a non-systematic manner. The information may be used within the framework of investment activities provided that it is not done in connection with the marketing or promotion of any financial instrument or investment product that makes any explicit reference to the trademarks licensed to EDHECinfra (EDHECinfra, Scientific Infra and any other trademarks licensed to EDHEC Group) and that is based on, or seeks to match, the performance of the whole, or any part, of a EDHECinfra index. Such use requires that the Subscriber first enters into a separate license agreement with EDHECinfra. The Information may not be used to verify or correct other data or information from other sources.

    The terms contained in this Disclaimer are in addition to the Terms of Service for users without a subscription applicable to the EDHECinfra website, which are incorporated herein by reference.

    This site uses cookies to deliver the services you request, improve user experience and measure audience. By continuing to browse our website, you are consenting to our use of cookies. Find out more about this in our Privacy policy.

  • X
    X
    X