Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 278

Airports as defensive assets for Australian investors

Mounting uncertainty surrounding the outlook for the global economy and investment markets is highlighting the benefits of holding defensive assets, such as infrastructure, in a portfolio. Unlisted airports have especially attractive features.

While typically thought of as an investment for large superannuation funds, more private investors are adding unlisted infrastructure to their portfolios. Infrastructure assets provide essential services such as gas, water, electricity transmission and distribution networks, as well as transport infrastructure including airports, rail and toll roads. These assets are considered to be defensive as they provide reliable income given the prices they charge are often regulated by governments and their cash flows are predictable.

The airport attraction

Airports provide numerous sources of revenue from a diversity of stakeholders such as airlines, passengers, visitors, retail tenants and government agencies.

In fact, airports should be considered as two separate businesses – airside and landside. The airside operations include the management of the runways of the airport. Revenue is generated by either a charge levied per passenger or a charge levied on the weight of the plane or a combination of both. This side of the operations behaves much like a regulated utility. The landside operations involve the non-air aspects of the airport such as retail shops, car parking and property development and maintenance.

Airports have been a strong driver of returns for unlisted infrastructure portfolios. The sector in Australia has delivered long-term growth, with only one year of negative passenger growth over the last 25 years. This compares to four years of negative growth for Australian equities over the same period. The airport sector performed relatively well through the GFC, with airlines managing the down cycle through a range of initiatives including discounted ticket prices and reduced services for example.

In FY 2017, Melbourne Airport generated a return of 25%, Perth Airport returned 13.2%, Brisbane Airport returned 14% and Adelaide generated 23.2% for investors.

The value of unlisted infrastructure in a portfolio

Unlisted infrastructure in a portfolio sits between government bonds and equities in terms of risk return, making it strong portfolio diversifier, as shown in the chart below. Infrastructure’s potential for stable, reliable income and capital growth is derived from long-term, stable and predictable cash flows, typically underpinned by long-term contracts or a regulated asset base. High visibility of income and revenues are often linked to inflation.

Unlisted infrastructure investments accounts for between 7- 12% of major institutional investor portfolios, with the Future Fund having allocated around 7% to infrastructure and Australian Super 12%, as at the end of 2017.

Risk return profile of unlisted infrastructure

Source: IPIF August 2018

The key is to determine which assets and projects will provide the greatest, and most consistent, returns.

Our investment strategy focuses on providing exposure to a diversified portfolio of mature, stable and cash-generating infrastructure assets. This includes exposure to transport assets including Perth, Adelaide, Melbourne and Brisbane Airports and Interlink Roads, and a number of energy and utilities assets including TransGrid, the UK’s South East Water and PowerCo and First Gas in New Zealand.

In infrastucture funds generally, it's worth checking on the type of assets held and the particular merits of airports.

 

Nicole Connolly is executive director at Infrastructure Partners Investment Fund Management Pty Ltd (IPIFM). This article is for general information only and does not consider the circumstances of any investor.

banner

Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

Latest Updates

Property

Financial pathways to buying a home require planning

In the six months of my battle with brain cancer, one part of financial markets has fascinated me, and it’s probably not what you think. What's led the pages of my reading is real estate, especially residential.

Superannuation

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

Economy

Household spending falls as higher costs bite

Shoppers are cutting back spending at supermarkets, gyms, and bakeries to cope with soaring insurance and education costs as household spending continues to slump. Renters especially are feeling the pinch.

Shares

Who gets the gold stars this bank reporting season?

The recent bank reporting season saw all the major banks report solid results, large share buybacks, and very low bad debts. Here's a look at the main themes from the results, and the winners and losers.

Shares

Small caps v large caps: Don’t be penny wise but pound foolish

What is the catalyst for smalls caps to start outperforming their larger counterparts? Cheap relative valuation is bullish though it isn't a catalyst, so what else could drive a long-awaited turnaround?

Financial planning

Estate planning made simple, Part II

'Putting your affairs in order' is a term that is commonly used when people are approaching the end of their life. It is not as easy as it sounds, though it should not overwhelming, or consume all of your spare time.

Financial planning

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.