3i Infrastructure downgraded over portfolio construction

Bestinvest has downgraded the 3i Infrastructure investment trust after becoming concerned by the construction of its portfolio.

The fund’s rating has been lowered from three stars to two after the IFA carried out a review of the infrastructure investment sector and paid “close attention” to the differences of the six London-listed trusts in the space.

One of the factors influencing the downgrade is the increase in private equity holdings in trading companies that has been seen since the fund’s launch in early 2007, Bestinvest says. The trust’s top three holdings – Anglian Water, Eversholt Rail Group and Oyster Catcher – now account for close to 50% of the portfolio.

“These are trading companies so though they are unlisted they still have equity-like risks,” the adviser says. “We prefer investments in physical infrastructure projects with 20-30 years’ contracted revenues backed by governments under [private finance initiative/public-private partnership] legal structures.”

Bestinvest also cites the trust’s 16% allocation to Indian infrastructure assets as a factor, saying: “Indian growth is not as certain as it once was and export related infrastructure assets are likely to be hit by a slowdown in global trade.”

In addition, 3IN’s cash holding of about 10% demonstrates a slow rate of investment and is acting as a drag on performance, the adviser says. It adds that the high allocation could indicate that the fund “is not as well connected into the infrastructure community as its rivals”.

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