Research house Zenith Investment Partners’ recent Infrastructure Sector Review has concluded employing currency hedging in relation to infrastructure investments is a preferable strategy.
Zenith investment analyst Jonathan Baird said during times of currency volatility, like those resulting from the global financial crisis (GFC) and the European credit crisis, choosing not to hedge investments in overseas equities could be beneficial as unhedged global stocks experienced lower levels of volatility then their hedged counterparts.
“But for global listed infrastructure, the same relationship hasn’t been as strong,” Baird said.
“During the GFC, unhedged infrastructure strategies provided a dampening of volatility, but this wasn’t the case during the European crisis of 2011, for example, and overall the volatility of hedged and unhedged infrastructure strategies has been much closer over time,” he said.
“Overall, we don’t believe the benefits for remaining unhedged are as strong in infrastructure versus global equities, for example, and therefore we would generally advocate using hedged in infrastructure and unhedged in global equities when planning a long-term, neutrally-hedged portfolio structure.”
In arriving at this conclusion, the research house considered a variety of factors, including valuations in the currency of the listing country and the income distribution process of the various fund managers included in the assessment.
During the process Zenith reviewed 15 infrastructure product offerings, with the hedged and unhedged versions of the Magellan Infrastructure Fund and the Rare Infrastructure Value Fund receiving a highly recommended rating .
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