Infrastructure case stronger with rise in level of risk

There is currently increased investor demand for infrastructure, a trend that could be further encouraged by the increased investment risks that are already apparent in 2022, according to Time Investments’ fund manager Chris Cox.

“We’ve seen volatility blow out to levels that we haven’t really seen for a year,” Cox said. He added that within the two main asset classes, equities and fixed income, some valuations have hit all-time highs, in the UK, Europe and US, where the inflation figure is north of five to seven percent.

“Economic growth has either peaked or is peaking, which is another big risk especially with the potential tightening of monetary conditions,” Cox added while talking to Richard Betts of Real Asset Insight.

Interest rates have risen in the UK and the ECB is now more hawkish. “Within that environment it’s going to be much more difficult to make money and certainly so within fixed income markets,” he said.

Equities and bonds are now more positively correlated than before which is a trait of the high inflationary environment that not many of us have been used to.

“When you have that positive correlation between equities and bonds, you’re clearly not getting the benefit of diversification from the fixed income part of your portfolio that you might have been used to, certainly if you’d been managing assets in the traditional 60/40% portfolio.

“This means there’s a real opportunity for investors to diversify and to increase their exposure to more alternatives such as infrastructure which, at least on a relative if not absolute basis, can perform quite well within that environment because they have inflation-linked characteristics.”

Click on the video to watch the full interview or listen to the podcast below.