These trusts offer a shield against rising prices – but investors haven’t yet noticed

You would think funds that boast inflation-linked revenues would be popular but they have been ignored, so the opportunity remains

‘I’m very surprised that investors have shown so little interest in these trusts. People are worried about inflation and some protection from inflation is exactly what infrastructure trusts can offer.” So says Richard Curling, manager of the Jupiter Monthly Alternative Income Fund, of those listed funds that invest in “real assets” such as roads, bridges, schools or wind farms. Some, such as Sequoia Economic Infrastructure Income and International Public Partnerships, have been tipped here in the past and remain attractive options for readers (see below). But Curling’s fund has also invested in a “digital infrastructure” trust called Digital 9 Infrastructure in the belief that it too offers a sturdy hedge against inflation. The trust – so named because it aims to conform with the ninth of the UN’S sustainable development goals, which relates to infrastructure – invests in companies that own subsea data cables, data centres, transmission towers and the like.

“The subsea cables are an interesting semi-monopolistic asset essential to the operation of things we all use every day – the owner leases capacity in the cables to companies such as Facebook and Netflix,” says Curling. “D9’s cables are more modern than some, so they have more capacity and will last longer, while prices are linked to inflation.

“Data centres are also essential to the digital economy and there is scope to grow returns via annual price increases and increasing utilisation.”

The contracts with the users of D9’s assets include a mixture of price mechanisms: some rise in line with the consumer prices index (CPI), some with the retail prices index (RPI), some rise by a fixed percentage each year. Some rises are subject to caps, some are not. “About 80pc of revenues are linked to inflation in some way,” Curling says.

“What I like is that this is infrastructure with some element of growth – growth in the assets, growth in revenues, growth in the dividend. It’s a new fund – D9 listed only last year – and has been growing by buying assets.” Last month it agreed to buy a 48pc stake in Arqiva, which operates digital television and radio transmitters and smart meter networks in Britain.

The trust is trading at a 7.4pc premium. This may put some readers off – normally it would put Questor off too – but, as we have often said, the valuation of trusts that invest in unquoted assets is as much art as science. It’s not unknown for trusts to keep the net asset value (NAV) low in order that they can then issue shares at a premium. Trusts do not normally issue shares other than at a premium to the official NAV so trading at a discount makes it harder for a trust to grow.

Curling says the shares, at about 112p, are probably “broadly in line with a more realistic net asset value figure”.

D9 is targeting an annual dividend of 6p, which would give investors a yield of 5.3pc at the current share price.

As it’s a newish fund you may not want to commit large sums to D9, but it is worth owning a stake.

Questor says: buy

Ticker: DGI9

Share price at close: 112.4p

Updates: Greencoat UK Wind, International Public Partnerships, Sequoia Economic Infrastructure Income

Much of the case for investing in D9 can also be made for these funds, all tipped here in the past: they enjoy inflation-linking on most if not all of their income (again generally with a mix of different terms as to CPI/RPI and caps) and offer generous yields as a result of investors’ puzzling failure to appreciate their inflation-fighting credentials.

This column thinks all are worth buying, but Curling is positive about the renewable energy trusts and Greencoat UK Wind in particular. “I think the stars could be aligned for these trusts,” he says: they make about half of their money from subsidies, which are subject to uncapped linking to RPI, and half from the electricity they generate – prices for which are currently sky-high.

“Some of these prices are subject to hedges, but hedges end eventually,” he says. “Greencoat UK Wind is the most exposed to the current spike in prices.” This looks to Questor like the standout buy.

Questor says: buy

Tickers: UKW, INPP, SEQI

Share prices at close: 154.4p, 163p, 89p