Global listed infrastructure should not be classified as a separate asset class owing to the similarity of risk adjusted returns to global utility stocks, claims a leading academic.
A presentation at the CSIRO-Monash Superannuation Research Cluster annual conference in Melbourne, given by associate professor Robert Bianchi of Griffith University, said the case was true for global, European and US indices for infrastructure, but not for Australian or Asian indices.
Bianchi explained research he has undertaken shows 94 per cent of the risk adjusted return of global listed infrastructure was the same as global utility stocks, a margin that was too close for such investments to be classified as a separate asset class.
He based this claim on two definitions of an asset class; firstly, that an asset class should have low or negative correlations with other assets and secondly, it should not be able to be replicated with a simple linear combination of other assets.
“This research tells me I can replicate listed infrastructure returns without using infrastructure assets,” said Bianchi. “There is no alpha here, no excess return I cannot explain; I can grab your money and put it in the global equity index and get a world size factor, a value factor and a momentum factor and put it in the world utility index and I will be able to replicate 94 per cent of the variation of global listed infrastructure.”
He also noted the correlation with the global utilities index had become more pronounced in recent years, over which demand for infrastructure assets had grown.
However, Bianchi cautioned replacing a global listed infrastructure with a global utilities index. “The problem is that when you say you can replicate things they blow up whenever the next crisis comes along.”
Bianchi also told delegates at the conference he was puzzled by the apparent contradiction between unlisted infrastructure being perceived as a low risk asset class, but generating high returns. He promised that his next piece of research would look to redress the generally low levels of academic research into unlisted infrastructure returns.