Want to stay one step ahead of the crowd? Buy this New Zealand investment firm

You can make higher returns if you are prepared to invest before an asset hits the mainstream. The managers of Infratil do just that

LAST week this column stretched its horizons to trusts listed in Canada and Australia; we continue our worldwide hunt for opportunities this week with one that hails from New Zealand.

In this we reflect the practice of those professional investors who try to stay one step ahead of the crowd and seek assets that offer higher returns because the majority of their rivals are not yet prepared to put money into them – it is the later rush of capital into such assets that ultimately depresses returns to more humdrum levels. Pietro Nicholls is one of these investors. His RM Alternative Income fund specialises in “alternative” assets and he invests across the globe in search of high, sustainable yields.

Infratil, a New Zealand company that works similarly to a British

infrastructure investment trust, is among his recent purchases. It has a record of putting money in new areas that offer higher returns, then selling once the asset type in question has gained wider acceptance and prices have risen.

“It invested a lot in student accommodation but is now reducing exposure because returns are no longer doubledigit,” Mr Nicholls said. “Similarly, six or seven years ago the returns on renewable energy assets meant you would have doubled your money by now, whereas current yields are more like 6pc a year because, as more capital rushes in, the returns fall. The guys at Infratil are smart so they go into areas that promise higher returns. They tend to buy an asset, develop it to a certain size and value, then sell.”

Two examples of infrastructure assets that currently offer higher returns are data centres and mobile phone towers. As people spend more

time on phones and use more dataintensive apps, the need for both data centres and phone masts increases.

The 5G services now being introduced around the world need more masts to support higher speeds, and mobile phone networks increasingly want other companies to bear the capital costs of owning the towers, in exchange for rental payments on long contracts.

“If you own a tower you might earn a few per cent a year from the first network to sign up, but then you can rent space to other networks for little extra cost and your returns begin to mount,” Mr Nicholls said. Infratil has acquired a stake in Vodafone’s tower estate in New Zealand.

Similarly, even giant technology companies will rent space in data centres rather than devote capital to building their own. “The data centre owner will have long contracts with some of the largest and most profitable companies on earth,” the RM fund manager added. “The returns are much more stable than those you would make from investing in the tech companies’ shares.”

This “digitising” trend is one of the overarching themes in which Infratil invests; others are the move to a low-carbon economy and the fact that, over the course of increasingly long lifespans, people need to be accommodated in infrastructure such as, at one end of their lives, student halls of residence and, at the other end, care homes. All feature in Infratil’s portfolio, along with an airport, a bus company and a utility firm.

In choosing to invest in these types of infrastructure, the company is limiting its exposure to those areas most at risk from political or regulatory pressure: governments are far more likely to move the goalposts where, for example, hospitals are concerned than they are with data centres.

Infratil does not publish an exact net asset value in the way that a British investment trust does but, on the basis of its most recent figures, the shares trade at about par value. There is also no equivalent of our “ongoing charge figure” but Questor estimates the annual management charge at 0.8pc.

The shares are listed in New Zealand and Australia; many brokers will not deal in them but Infratil’s Australian shares are available via Saxo Bank.

Questor says: buy

Ticker: ASX: IFT

Share price at close: A$4.32; NZ$4.60