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The decision of central banks in Canada and Europe to cut interest rates this month means it is probably only a matter of time before the Bank of England follows suit and lowers the Bank Rate from 5.25pc.
That will be a huge relief to investors in infrastructure funds and real estate investment trusts which have struggled as rates were aggressively raised from near-zero in December 2021 to their current level last August.
Funds like HICL Infrastructure, a £3.2bn investment trust first tipped by this column in 2014, are sensitive to rises in the yields on government bonds which increase when interest rates go up.
With 58pc of its portfolio invested in public-private partnerships (PPP) managing the fabric of schools, hospitals, police stations and barracks, social infrastructure funds like HICL have long been viewed as “bond proxies”.
The government-backed revenues they receive from long-term contracts averaging 14 years does make them comparable to a bond paying regular, fixed levels of income.
And with 64pc of assets in the UK, movements in gilts, or UK government bonds, are highly influential on HICL.
It is no coincidence that the period from August to October 2022 – when 15-year gilt yields doubled to 4.8pc largely in response to the uncosted “mini-Budget” of Lizz Truss – marked a high point in the share price.
From 176p in early September 2022, when the shares stood on a premium of 8pc above the value of the trust’s assets, HICL has tumbled by a third to 121.8p, where it languishes 22pc below analysts’ latest estimate for net asset value (NAV) of 156.8p per share.
Fortunately, annual results published last month had encouraging news.
While the NAV fell 4.1pc in the 12 months to March 31, as high interest rates knocked its income-producing assets, the rate of decline slowed to 0.75pc in the final three months of the financial year.
More positively, the company announced it would increase its quarterly dividends to a total of 8.35p per share next year, putting it on a forecast, covered yield of nearly 7pc and ending what will be five years with the payout stuck at 8.25p.
HICL also reminded shareholders it had sold nine infrastructure projects for £500m, either at or above their previous valuation.
That quashed fears the depressed share price indicated the NAV was overstated.
In addition, the completion of two disposals of stakes in the Northwest Parkway toll road near Denver, Colorado, and the transmission link to Hornsea II in the North Sea, the world’s largest offshore wind farm, meant its expensive overdraft, or credit facility, could be repaid.