Performance of global listed infrastructure investment in a mixed asset portfolio

Abstract

This paper seeks to examine global infrastructure investment performance compared with other global asset classes such as stocks, bonds, real estate investment trusts, property, hedge funds and private equity. The paper examines the level of correlation of infrastructure with the other assets classes largely reflecting the diversification potential of infrastructure within a mixed asset portfolio. Monthly return indices obtained from Thomson Reuters DataStream over a 10-year period (2001–2010) facilitated the examination of listed infrastructure investment return characteristics including average annual return, annual risk, Sharpe index, mean variance portfolio and maximum return portfolio. Efficient portfolio frontiers were computed using risk solver platform version 11. From a global perspective, investments in infrastructure show a robust comparative performance over the 10-year timeframe (2001–2010). The study is supportive of the argument that the inclusion of infrastructure in a mixed asset portfolio enhances investment performance. The role of global infrastructure in a multi-asset portfolio is shown to be more risk reduction rather than enhancement of return. From a practical viewpoint, the systematic allocation of between 10 and 17.63% of infrastructure into a global investment portfolio can significantly enhance diversification benefits for investors.