How much into infrastructure? Evidence from dynamic asset allocation

Dechant, Tobias; Finkenzeller, Konrad

doi:10.1080/09599916.2012.731075

Cited by 18 publications

(22 citation statements)

References 10 publications

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“…Whilst past research confirms the role of infrastructure as a separate asset class (e.g. : Dechant and Finkenzeller, 2013;Finkenzeller et al, 2010;, the results from this analysis enhance the existing knowledge on the power of diversification that can be achieved through investment in the infrastructure asset class; in particular in listed satellite and telecommunication companies. These results provide a strong investment case for these listed infrastructure sub-sectors for investors looking for exposure in tangible infrastructure asset-based investments in a liquid and transparent format, particularly given the lack of diversification benefits of listed property with stocks over a long-term investment horizon.…”

Section: Diversification Benefitssupporting

confidence: 62%

The investment opportunities in the innovation-led listed satellite and telecommunication infrastructure sectors

Marzuki

Newell

2020

JPIF

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PurposeCommunication infrastructure assets present a compelling investment opportunity for investors interested to tap into the technology-driven and innovation-led infrastructure segments, given the need for intensified capital deployment to prepare for the future substantial flow in volume and velocity of information. These communication infrastructure assets exist either in the segments of satellite or telecommunication infrastructure. This paper intends to empirically assess the performance attributes of listed satellite and telecommunication infrastructure over January 2000–June 2019. Sub-period performance dynamics of listed satellite and telecommunication infrastructure in the pre-GFC (January 2000–June 2007) and the post-GFC (July 2009–June 2019) investment horizons are provided.Design/methodology/approachNineteen-year monthly total returns over 2000–2019 were used to analyse the risk-adjusted performance and portfolio diversification potential of both listed satellite and telecommunication infrastructure. The mean-variance portfolio optimisation framework using the full period and post-GFC ex-post returns, risk and correlation coefficient of listed satellite and telecommunication infrastructure and other financial assets was developed to determine the added-value benefits of listed satellite and telecommunication infrastructure in an optimised investment framework.FindingsListed satellite and telecommunication infrastructure delivered mixed investment performance. They were highly volatile and there was a significant discount in total return performance against the other asset classes in the full and pre-GFC periods. However, listed telecommunication infrastructure delivered stronger performance in the post-GFC period across all performance measures. Listed satellite and telecommunication infrastructure offered strong diversification benefits for investors across all investment horizons. Further, the inclusion of listed telecommunication infrastructure in both the full period and post-GFC mixed-asset investment framework was also empirically justified.Practical implicationsCommunication infrastructure assets such as satellite and telecommunication infrastructure are the key infrastructure assets to ensure the seamless operation of and interaction with modern technology going forward. Whilst being a small proportion of the overall infrastructure asset class universe, the $2.1 trillion progressively expanding listed communication infrastructure sector is having an important role to stimulate investor capital deployments in high quality and future-proof communication infrastructure assets. Listed satellite and telecommunication infrastructure assets are an opportunistic investment given their future growth potential and are seen as a suitable fit for investors with a secular investment profile.Originality/valueDespite the infrastructure asset class being the focus of growing attention and empirical analysis, no previous studies have empirically investigated the listed satellite and telecommunication infrastructure sectors. This is the first published empirical research analysis that aims at articulating the investment attributes of listed satellite and telecommunication infrastructure as a route for exposure in technology-related infrastructure assets. This research validates and informs practical property investment decision-making for investors seeking exposure in the increasingly important communication infrastructure assets sector.

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Section: Diversification Benefitssupporting

confidence: 62%

The investment opportunities in the innovation-led listed satellite and telecommunication infrastructure sectors

Marzuki

Newell

2020

JPIF

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“…Other studies on the performance of infrastructure indices by Peng and Newell (2007), Finkenzeller et al (2010), Dechant and Finkenzeller (2013), and Oyedele et al (2014) also report potential diversification benefits. However, none examine whether these are statistically or economically significant.…”

Section: Ad Hoc Listed Infrastructure Indicesmentioning

confidence: 99%

Searching for a listed infrastructure asset class using mean–variance spanning

Blanc-Brude¹,

Whittaker²,

Wilde

2017

Financ Mark Portf Manag

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This study examines the portfolio-diversification benefits of listed infrastructure stocks. We employ three different definitions of listed infrastructure and tests of mean-variance spanning. The evidence shows that viewing infrastructure as an asset class is misguided. We employ different schemes of infrastructure asset selection (both traditional asset classes and factor exposures) and discover that they do not provide portfolio-diversification benefits to existing asset allocation choices. We also find that defining and selecting infrastructure investments by business model as opposed to industrial sectors can reveal a very different investment profile, albeit one that improves the mean-variance efficient frontier since the global financial crisis. This study provides new insights into defining and benchmarking infrastructure equity investments in general, as well as into the extent to which public markets can be used to proxy the risk-adjusted performance of privately held infrastructure investments.

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“…Using such indices, Bianchi et al (2014) and Bird et al (2013) observe that infrastructure shows returns, correlation and tail risk similar to that of the stock market, albeit with a slightly higher Sharpe ratio. Further, Peng and Newell (2007), Dechant and Finkenzeller (2013) and Oyedele et al (2014) also report potential diversification benefits. However, statistical or economic significance of these is not examined by any of the aforementioned studies.…”

Section: Literature Reviewmentioning

confidence: 99%

Infrastructure Equity and Firm Performance in India

Hasnat

2020

Millennial Asia

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The growing financing requirements coupled with tightening of fiscal purse strings point to the pertinence of market-based finance for infrastructure provision and enhancement. For this, the question of the sectoral performance of infrastructure takes centre stage and this becomes the basis for the present study. The study assesses the risk-return and volatility profile of Nifty Infra, the National Stock Exchange (NSE) sectoral index for the 30 biggest infrastructure firms in India vis-à-vis the broader Nifty 50 for the time period 2010–2018. The study employs the standard financial economic analysis methods of capital asset pricing model (CAPM) and generalized autoregressive conditional heteroskedasticity in mean (M-GARCH) model and finds the sectoral equity performance of infrastructure to be marginally below that of a broadly diversified index. Further, the study analyses the cash flow and leverage characteristics which are imperative factors in medium-term risk-return profile of infrastructure stocks. The disaggregated firm level analysis of 10 select firms reveals that rent-like return does exist for the biggest players in the sector due to past installed capacities, while the subcontracting mechanism percolates to meagre cash flows for smaller players, partly bearing the greenfield risks. This suggests the need for state-induced measures to prop up liquidity in equity trade for infrastructure firms. This would not only enhance the risk-return profile but also mitigate excessive volatility for these heavily leveraged firms.

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How much into infrastructure? Evidence from dynamic asset allocation

Cited by 18 publications

References 10 publications

The investment opportunities in the innovation-led listed satellite and telecommunication infrastructure sectors

The investment opportunities in the innovation-led listed satellite and telecommunication infrastructure sectors

Searching for a listed infrastructure asset class using mean–variance spanning

Infrastructure Equity and Firm Performance in India

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