4D Global Infrastructure Fund

The 4D Global Infrastructure Fund is a vehicle for investing in international listed infrastructure. It was started earlier this year, so unlike the Australian Unity Healthcare Fund which has been running for over a decade, this one is brand new. The fund has a global asset base with 38% allocated to Europe, 24% to North America, 27% to emerging markets and 9% to developed economies in Asia. Currently the fund is holding about 2% in cash. The fund aims to identify listed global infrastructure securities trading at or below fair value that matches their profile for growing earnings and sustainable, growing dividends.

The fund has minimum market capitalization and daily trading thresholds as part of its investment strategy, meaning that it will avoid companies that are too small or are trading at too high a volume: both of these are intended to avoid some kinds of market risk. The investment strategy has some regard for market conditions and timing, meaning they will try to capitalize on market changes and dislocations. There is a maximum of 10% allocation to derivatives as an alternative to a direct security purchase.

The 4D Global Infrastructure Fund is a part of Bennelong Funds Management, a firm based in Australia but with a recently-opened office in London and it’s in an expansion phase. The firm has more than $7.5 billion under management and is owned by Jeff Chapman.

The fund is benchmarked to the OECD G7 inflation index + 5.5% and typically holds 30-60 stocks with a maximum cash allocation of 10%. The investment portfolio is broadly focused on utilities and infrastructure, including airports, communications, electricity, gas, ports, rail, toll roads and water. The maximum weight of any given stock in the portfolio is 7% and the three largest positions as at 30th October were Groupe Eurotunnel (4.53%), Transurban (4.10%) and Jasa Maga (3.95%). The top ten positions make up around 37% of the portfolio.

Currently the fund is returning -0.82% at 6 months and 5.27% since inception (March 2016). While these are fairly dismal numbers to offer you, these were from the October statement, the September statement had a return of 5.03% at 6 months and 7.8% since inception.  Being new, longer term (and more stable) return metrics aren’t yet available.

In such a new fund, and especially one that’s been exposed to a fairly volatile market given the US election, it’s worth a closer look at the returns history (such as it is so far) and the fund’s behavior. The chart below shows the chart’s performance over its first seven months compared to its benchmark: it’s experienced below-benchmark returns in the last couple of months, but has also had above benchmark returns during a fairly volatile period for infrastructure.

Two things stand out from this chart: the benchmark, unlike an industry or sector-based benchmark, the OECD G7 inflation rate has almost no volatility over this period. As has been discussed ad nauseam, inflation has (quite literally) flat-lined in the G7 over recent years. So judging volatility by comparing the two isn’t a reasonable prospect. The other is that there isn’t much in the way of data here to make solid comparisons: time to look further afield.

4d-return-vs-oecd-g7-inflation

Data: 4D Global Infrastructure Fund. Chart: The Constant Investor.

The next chart shows the fund’s application prices against the ASX200 for the period from inception until just after the US election. Application prices aren’t a perfect substitute for net asset value, any changes in buy spread aren’t factored in: but they are a reasonable proxy. The chart below shows that the fund has a pretty strong relationship with the ASX200 (In fact, I make the correlation between ASX200 and application price for 4D at around 73%.) There has been a downward trend in entry price since September and a sharp fall at November 9. It will be interesting to watch the post-Trump rebound in the next week or two.

4d-application-prices

Data: 4D Global Infrastructure Fund. Chart: The Constant Investor.

Investing in listed infrastructure (even with an unlisted vehicle) may be exposed to some risk, one of which is that there is now an expectation that inflation will pick up following a large stimulus program (on infrastructure) in the US. However, this is far from certain. Infrastructure can be exposed to risk when inflation or interest rates are increasing, but provides good advantages in terms of reliable returns and long-time horizons.

Trump is promising a large fiscal stimulus, specifically on infrastructure in the US. Other countries may follow suit. This may create opportunities for a fund like 4D, though any projects will be a long-term outcome and not an immediate positive cash-flow. There is also the “Trump uncertainty” factor: what he intends to do, what he says and what he will do may turn out to be three different things.

The fund has a management fee of 0.95% and a performance fee of 10.25%. The minimum investment is $25 000. The buy/sell spread is 0.3%. Distributions are quarterly. Withdrawals are available at any time and available between 14-21 days after receipt of the withdrawal request, subject to liquidity conditions on the fund.