The infrastructure space is an interesting area of potential opportunities for investors to look at, according to a leading fund manager.

Businesses that generate "stable long-term cash flows" could help diversify returns – that's the view of Blackrock's global head of alternatives, infrastructure and real estate, Anne Valentine Andrews. She likes infrastructure assets even with risks such as "governments imposing artificial price caps amid political pressure".

Infrastructure company earnings are "often less tied to economic cycles than corporate assets. Contracts can be long-term and span decades. And infrastructure assets can help hedge against inflation, with fixed costs and prices linked to inflation."

How could infrastructure deliver growth?

Blackrock believes there are opportunities in the infrastructure space. Andrews said:

From roads to airports and energy infrastructure, those assets are essential to industry and households alike.

Infrastructure has the potential to benefit from increased demand for capital over the long-term, powered by structural trends such as the energy crunch and digitalisation.

The fund manager also pointed to how World Bank data suggests that there's a gap of about $1.5 trillion between existing investments and what's needed to meet global infrastructure demand over coming decades.

What ASX shares could benefit?

After Sydney Airport was taken over, there are fewer options to look at, but I'll note a couple of investments that are available to investors.

Transurban Group (ASX: TCL) is a multi-country toll road operator, owner and developer. It has toll roads in Australia and North America. The business is seeing traffic recovering from COVID impacts and toll fees are increasing faster because they are linked to inflation, which is currently elevated. This in turn can boost the distribution to investors.

The business is also working on new toll roads, which can boost cash flow in future years.

Despite higher interest rates, the Transurban share price is up slightly in 2022.

Magellan Infrastructure Fund (Currency Hedged) (ASX: MICH) is a fund that invests in infrastructure shares around the world.

It's invested in various infrastructure sectors like airports, communications, toll roads, rail, energy infrastructure,  gas utilities, transmission distribution, integrated power and water utilities.

The fund is geographically diverse, with 41% invested in the USA, 27% in Europe, 13% in Asia Pacific, 12% in the UK, 2% in Canada and 5% in cash.

In terms of the actual names, these were the biggest positions in the portfolio at the end of November 2022 (in alphabetical order): American Tower Corporation, Atlas Arteria Group (ASX: ALX), Ferrovial, National Grid, Norfolk Southern Corporation, Sempra Energy, Transurban, United Utilities Group Plc, Vinci and Xcel Energy.

It has been a rough time for infrastructure shares as rising interest rates affect valuations, but the Magellan Infrastructure Fund share price has been recovering in recent months as confidence returns.

The post Could this quiet pocket of the market be an ASX index outperformer through inflation? appeared first on The Motley Fool Australia.

Infrastructure ASX shares could be a compelling place to find businesses with potentially reliable cashflows and consistent distributions.

Some investments have exposure to long-term tailwinds like energy transition or population growth.

The below two ideas could be ones to consider as leading ASX infrastructure shares:

Magellan Infrastructure Fund (Currency Hedged) (ASX: MICH)

This is a fund that aims to deliver the stable returns offered by the infrastructure asset class, while protecting returns from currency movements.

It has a global portfolio of 20 to 40 infrastructure stocks. Some of the names in the portfolio include Transurban Group (ASX: TCL), Atmos Energy, Excel Energy, Crown Castle, Eversource Energy, Aena, American Tower, Enbridge, Vinci and Sempra Energy.

Looking at the portfolio by the sector exposure, there isn't a large allocation to any particular segment. At the end of July 2021, these were the following weightings: airports (8%), communications (10%), roll roads (14%), rail (8%), energy infrastructure (7%), gas utilities (7%), transmission and distribution (17%), integrated power (18%) and water utilities (7%). The rest of the portfolio is a 4% cash holding.

The infrastructure ASX share defines infrastructure as monopoly-like assets that face reliable demand and enjoy predictable cashflows.

This investment pays out a distribution semi-annually. Over the last three years, Magellan Infrastructure Fund's total returns have outperformed the global infrastructure benchmark by an average of 2.4% per annum, after fees.

It comes with an annual management fee of 1.05% per year.

APA Group (ASX: APA)

APA is a large energy infrastructure ASX share. Its key asset is a large, national gas pipeline that spans more than 15,000km. It supplies half of Australia's natural gas usage.

But it has other assets as well, including gas storage facilities, gas processing plants, gas energy generation and renewable energy (wind, solar and batteries).

The business is always on the lookout for opportunities to invest into more assets which aim to increase its overall cashflow generation. It's the annual cashflow generation that funds the payment of the distribution to shareholders.

It has a 'growth pipeline' of $1.3 billion over the next three years. The business is expecting to pay a distribution of 53 cents per security in FY22, which currently translates to a distribution yield of 7.3% at the current share price.

It's currently in a takeover battle to try to buy Ausnet Services Ltd (ASX: AST). AusNet is one of the largest electricity network operators in Australia, with $11.2 billion of a regulated and contracted asset base, as well as $1.9 billion of annual revenue. It services over 1.5 million customers and has 60,850km of transmission and distribution lines across Victoria, as well as 12,400km of gas networks.

APA is attracted to a few different things about Ausnet. APA likes the predictable earnings and cashflows that it offers, with 94% of FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) coming from regulated businesses. The infrastructure ASX share also points to an attractive organic growth pipeline, with $2.2 billion of total Victorian regulated capital investment to 2027.

If APA is successful with the bid, it would change APA's EBITDA generation. APA generated 89% of EBITDA from gas in FY21. The new split would be 58% from gas, 20% from electricity distribution, 13% from electricity transmission and 9% from power generation, contracted electricity and others.

In summary, APA likes the potential AusNet investment for its potential to unlock long-term growth opportunities in the Australian energy transition.

The post 2 leading infrastructure ASX shares to consider appeared first on The Motley Fool Australia.

There are some ASX shares that could be quality picks for the long-term at the current prices.

Some businesses are generating pretty predictable cashflow because of the nature of the underlying businesses.

These two ASX shares could be long-term opportunities:

TPG Telecom Ltd (ASX: TPG)

TPG is one of the largest telecommunication businesses in Australia with a market capitalisation of around $11 billion.

It's the combined business of the old TPG business which merged with Vodafone Australia.

The TPG share price has fallen around 16% over the last six months, though it has risen more than 22% during the last six months, so it has gone through a bit of recovery.

TPG has a number of initiatives and strategic priorities.

For example, it recently launched 'felix', the first telco brand that is powered by 100% renewable electricity.

The business is working on the synergy benefits of bringing TPG and Vodafone Australia together. It's targeting $70 million in 2021 alone, along with organisational integration.

The ASX share is trying to grow its share of converged households. It can sell both mobile and fixed broadband products.

TPG is also trying to make the most of its network infrastructure assets by providing compelling broadband services to more customers.

The final priority is to drive competition and growth in enterprise, government, wholesale with whole-of-business telecommunications solutions.

TPG will continue rolling out 5G to grow in the next phase of the telco industry.

Magellan Infrastructure Fund (ASX: MICH)

This is a fund that is concentrated on global infrastructure businesses. It's actively managed to try to find investments that achieve attractive risk adjusted returns over the medium to long-term, whilst reducing the risk of permanent capital loss.

The ASX share is invested across a number of different sectors.

There's 6% in airports, 9% in communications, 15% in toll roads, 8% in rail, 7% in energy infrastructure, 8% in gas utilities, 17% in transmission and distribution, 18% in integrated power and 6% in water utilities.

In terms of the actual businesses in the portfolio, its top 10 holdings (in alphabetical order) are: American Tower Corporation, Atmos Energy Corporation, Crown Castle International, Enbridge, Eversource Energy, Red Electrica Corporation, Sempra Energy, Transurban Group (ASX: TCL), Vinci and Xcel Energy.

Looking at the historical performance, after the annual management fee of 1.05%, the net returns over the last four years has ben 4.9% per annum. That's 2.2% per annum better than the global infrastructure index returns over the same time period.

The post 2 high-quality ASX shares that could be buys appeared first on The Motley Fool Australia.

With interest rates remaining at near-zero, record lows, the appeal of ASX dividend shares for income remains strong. Since there are very few alternatives out there to a fully franked dividend, choosing the right dividend shares to generate income for your ASX share portfolio is a delicate task. After all, 2020 saw many ASX shares that used to have a reputation for solid dividend income, rain hail or shine, cutting their shareholder payouts.

Here are 2 ASX dividend shares for your consideration today.

Rural Funds Group (ASX: RFF)

Rural Funds Group is an ASX REIT (real estate investment trust) that specialises in agricultural properties. This could present many advantages from an income perspective right off the bat. We all need food and other products that rely on farmland for production. Rural Funds owns a number of properties around Australia that are leased out for the production of everything from grapes to beef, macadamias, sugar cane and almonds.

Rural Funds has managed to deliver a pretty robust schedule when it comes to paying out dividends. The REIT aims to increase its annual dividend distributions by 4% per annum. It managed to do just that last year, despite the ravages of the pandemic. On the current Rural Funds share price, the company has a trailing dividend yield of 3.94%.

Magellan Infrastructure Fund (ASX: MICH)

Another ASX dividend share to consider today is this listed fund from Magellan Financial Group Ltd (ASX: MFG). Magellan Infrastructure Fund is designed to provide a robust stream of income for shareholders, with a low risk of permanent capital losses.

It does so by investing in a portfolio of infrastructure assets. These include toll road companies, electricity generators and retailers, airports, rail, and water utilities, amongst other things. This fund invests in companies all over the world, but you can find the ASX's own Transurban Group (ASX: TCL) amongst its current holdings. It's also hedged against foreign currency movements.

Magellan Infrastructure Fund's last two dividends came in at 5.95 cents a share and 7 cents a share. That gives this company a trailing distribution yield of 4.42% on current pricing. Because it's a managed investment vehicle, there is also a management fee of 1.05% per annum for investors to consider.

The post 2 ASX dividend shares that could be a buy for income today appeared first on The Motley Fool Australia.

With the S&P/ASX 200 Index (ASX: XJO) climbing dramatically this week to a new post-COVID high, it can be tempting to think these sorts of lucrative market conditions can last forever. Alas, this has never been, and will never be, the case.

The markets are a volatile beast, and can both giveth and taketh away. While some investors embrace this inherent volatility as a useful way to buy shares on the cheap, it can be downright scary, and off-putting, for many others. That's where defensive ASX shares can be useful.

There are defensive ASX shares out there that have the potential to increase the stability and decrease the volatility of one's portfolio if that's an important consideration for you. Here are two such ideas today:

iShares Global Consumer Staples ETF (ASX: IXI)

This exchange-traded fund (ETF) from iShares only invests in a basket of global companies in the consumer staples sector. Consumer staples is an investing term that describes all of the goods and services we all tend to need, rather than want. This includes food, drinks, household essentials like laundry powder, soap and dishwashing liquid, and vices like alcohol and tobacco.

The beauty of this sector is that it tends to be almost completely immune from economic conditions. We all need to eat, drink and run our houses in good times and bad. And that makes these companies extremely defensive investments. Some of this ETF's largest holdings include Coca-Cola Co (NYSE: KO), Procter & Gamble Co (NYSE: PG), Unilever plc (LON: ULVR) and McDonald's Corp (NYSE: MCD). Even our own Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) feature. 

This ETF has returned an average of 12.11% per annum over the past 10 years. It charges a management fee of 0.46% per year.

Magellan Infrastructure Fund (ASX: MICH)

This listed fund is run by Magellan Financial Group Ltd (ASX: MFG). Magellan is one of the most popular fund managers in Australia. This fund focuses entirely on infrastructure. It invests in companies with large, stable infrastructure investments like toll roads, ports, airports, energy infrastructure and power generation and transmission. Like consumer staples, demand for these assets tends to be very consistent and inelastic. That means they tend to generate cash flows in good times and bad, making them very useful defensive investments.

Magellan Infrastructure Fund holds companies like Atmos Energy Corporation (NYSE: ATO), Enbridge Inc (NYSE: ENB) and our own Transurban Group (ASX: TCL).

This defensive ASX share has returned an average of 5.81% per annum since its inception in 2016. It charges a management fee of 1.05% per year.

The post Why you should buy these 2 defensive ASX shares today appeared first on The Motley Fool Australia.

There are some ASX dividend shares that have a history of paying attractive income payments to shareholders.

The Reserve Bank of Australia (RBA) official interest rate is now down to a low of just 0.1%.

Here are three examples of shares with a reputation for paying dividends:

Transurban Group (ASX: TCL)

Transurban is one of the world's biggest toll road businesses. According to the ASX, it has a market capitalisation of $38 billion. At the end of September 2020, Transurban was Magellan Infrastructure Fund's (ASX: MICH) largest position in its portfolio.

Before COVID-19 came along, it was steadily increasing its distribution every year. But then the pandemic significantly reduced traffic for a period of time whilst people worked and learned from home.

In the quarter ending 30 September 2020, Transurban said that its average daily traffic (ADT) was down by 25.2%. Volumes were down at the group level, but there had been continuing improvement in Brisbane, Sydney, the Greater Washington Area and Montreal. Melbourne was where most of the decline was, with Melbourne ADT down 58.6%. However, Melbourne restrictions have now been lifted.

The FY21 distribution by the ASX dividend share is anticipated to be in line with free cash excluding capital releases. The Commsec forecast distribution for Transurban in FY21 is expected to be around 38 cents per unit, equating to a distribution yield of 2.7%. FY22 is expected to have a distribution of 49.5 cents per unit, representing a forward yield of 3.5%.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) which specialises in owning and leasing out agricultural properties. According to the ASX, it has a market capitalisation of $837 million.

It has a diversified portfolio of properties across different sectors including cattle, vineyards, almonds, macadamias and cropping (sugar and cotton). Its properties are also spread across different climates and states to add diversification.

Rural Funds owns a large amount of water entitlements for its tenants to use, which is helpful during times of low rainfall.

The REIT has rental growth built into all of its contracts. That growth is linked to either a fixed 2.5% increase per year or CPI inflation, plus market reviews. Rural Funds also retains some of its annual rental cash profit to invest into improvements at its farms which can boost the rental income and farm value.

The ASX dividend share aims to increase its distribution by at least 4% per year. It's aiming to grow its distribution to 11.28 cents per unit in FY21, which equates to a forward distribution yield of 4.6%.

Service Stream Limited (ASX: SSM)

Service Stream is a business that's involved in essential network services to the telecommunications and utility sectors. It's involved in the design, construction, operation and maintenance of service networks.

According to the ASX, Service Stream has a market capitalisation of $979 million.

Service Stream has just announced that it has secured a "significant" long-term agreement with the NBN Co for the provision of service activations, operations and maintenance of the NBN.

The agreement is for an initial period of four years, with two two-year extension options. The deal will replace the existing operations and maintenance master agreement (MMA) that had been going since December 2015.

Under the Unify Services' regional allocation model, NBN has allocated Service Stream the regions of Queensland, South Australia, Northern Territory and Western Australia, with additional regions able to be allocated at the NBN's discretion. Unify Services is expected to generate approximately $70 million of revenue for the group in its first year, with subsequent years depending on annual work volumes.

In FY20 Service Stream maintained its dividend at 9 cents per share, which equates to a trailing grossed-up dividend yield of 5.3%.

The post 3 top ASX dividend shares to buy appeared first on The Motley Fool Australia.

In this article are two defensive ASX dividend shares that pay reliable income.

The Reserve Bank of Australia (RBA) decided this week to maintain the official interest at just 0.10%.

Here are two ASX dividend shares that pay reliable income to shareholders:

Rural Funds Group (ASX: RFF)

Rural Funds is an agricultural real estate investment trust (REIT).

It owns a diversified portfolio of farming assets. The ASX dividend share has cattle farms, vineyards, almond farms, macadamia farms and cropping properties (sugar and cotton). It currently has 61 properties.

The properties are spread across different states and climactic conditions to add additional diversification to its real estate portfolio.

Most of Rural Funds' tenants are large and listed entities. Some of its tenants include Treasury Wine Estates Ltd (ASX: TWE), Select Harvests Limited (ASX: SHV), Olam, JBS and Australian Agricultural Company Ltd (ASX: AAC).

Most of these tenants are on long-term leases, particularly the almond farms. Rural Farms has a weighted average lease expiry (WALE) of around 11 years at 30 June 2020. It had a gearing ratio of 29.7% at the end of FY20. 

The ASX dividend share aims to increase its distribution by at least 4% per annum. It has achieved this each year over the past several years since it listed.

Rural Funds has rental increases built into its rental agreements. One large group of rental agreements has a fixed 2.5% increase each year. Its other group of rental agreements have increases linked to CPI inflation. Some of those contracts have market reviews with them.

Rural Funds has been investing in productivity improvements at its farms, particularly the cattle properties, to boost the rental income and value of the farm.

For FY21 the ASX dividend share has provided distribution guidance of 11.28 cents per unit, this equates to a forward distribution yield of 4.4%. The FY21 adjusted funds from operations (AFFO) per unit, which essentially measures the cash net rental profit, is expected to come in at 11.7 cents.

Magellan Infrastructure Fund (ASX: MICH)

This is an exchange-traded fund (ETF) which gives investors exposure to infrastructure businesses around the world.

To be considered to make it into the portfolio, the underlying business must provide a service that is essential to the efficient functioning of a community, while generating cash flows that are not subject to external risks such as commodity prices.

On top of that, the ASX dividend share looks at other risks like gearing levels, sovereign risk, regulatory risk and reporting transparency. The businesses that remain should have reliable demand and generate predictable cash flows according to the infrastructure investor.

At the end of October 2020 its biggest holdings were (in alphabetical order): American Water Works, Atmos Energy Corporation, Crown Castle International Enbridge, Eversource Energy, Red Electrica Corporacion, Sempra Energy, Transurban Group (ASX: TCL), Vopak and Xcel Energy.

The COVID-19 decline has caused the net return over the past four years to drop to 5.5% per annum, though that it is still 4.2% higher than the benchmark, being the S&P Global Infrastructure Net Total Return Index. Whilst those figures include the fees, it must be stated that the annual management fee is 1.05% per annum.

Around 42% of this fund is invested in USA assets, with another 22% in Europe and 17% in the Asia Pacific region. The rest of the assets, apart from a 10% cash position, is invested in the UK, Latin America and Canada.

Based on the current Magellan Infrastructure Fund share price, it offers a trailing distribution yield of 4.1%.

The post 2 defensive ASX dividend shares for income appeared first on The Motley Fool Australia.

Is the Magellan Infrastructure Fund (Currency Hedged) (ASX: MICH) share price a buy?

It's an active exchange-traded fund (ETF) that invests in global infrastructure. It's currently an ASX share rated as a buy by the Motley Fool Dividend Investor service.

What's an active ETF?

Not every ETF is passive that just follows an index. Typical ETFs such as Vanguard Australian Shares Index ETF (ASX: VAS) just aim to follow the ASX 300.

But there are some fund managers that offer their funds in an open-ended fund structure that can be invested in via the ASX. The key difference is that fund managers are the ones that are making the share picks, rather than an automatic index weighting.

Which manager manages this ETF?

The Magellan Infrastructure Fund is managed by Magellan Financial Group Ltd (ASX: MFG), which has billionaire investor Hamish Douglass as the chair and chief investment officer.

Magellan is best known for being an investment manager that focuses on international shares, with $78.3 billion of funds invested with Magellan's international strategy. However, Magellan has also $17.86 billion invested in infrastructure shares.

The actual Magellan Infrastructure Fund is managed by Gerald Stack.

What does Magellan Infrastructure Fund aim to do?

According to Magellan, it aims to hold 20 to 40 shares and tries to deliver the stable returns offered by the asset class, while protecting returns from currency movements.

Magellan says that the infrastructure asset class is characterised by monopoly-like assets that face reliable demand and enjoy predictable cashflows. Potential investments that meet these criteria are expected to achieve strong underlying financial performance over medium- to long-term timeframes, which should translate into reliable, inflation-linked investment returns.

Magellan has a particular process for identifying infrastructure. The underlying business must provide a service that is essential to the efficient functioning of a community, while generating cash flows that are not subject to external risks such as commodity prices. Magellan also evaluates other criteria, such as gearing levels, sovereign risk, regulatory risk and reporting transparency, which, if failed, will result in exclusion from the investment universe.

The fund manager believes that by excluding businesses that fail to meet these criteria, the universe consists purely of companies that enjoy reliable demand and generate predictable cash flows. This analysis includes evaluations of a company's external environment, its business-specific issues, its historical financial performance and its valuation.

What shares are in the fund?

In its latest monthly update, Magellan Infrastructure Fund said that its largest 10 holdings, in alphabetical order, were: American Water Works, Atmos Energy Corporation, Crown Castle International, Enbridge, Eversource Energy, Red Electrica Corporation, Sempra Energy, Transurban Group (ASX: TCL), Vopak and Xcel Energy.

At 31 October 2020, it also had a cash position of 10% of the portfolio.

Whilst USA shares represents the biggest country allocation, it's less than half of the portfolio at around 42%. Europe, Canada, Latin America, the UK and Asia Pacific are also represented.

How has it performed?

Magellan quotes its returns as net returns, which is after the fees – including the management fee of 1.05% per annum.

Over the past four years, the Magellan Infrastructure Fund has returned 5.5% per annum, outperforming the S&P Global Infrastructure Net Total Return Index by an average of 4.2% per annum.

Is the Magellan Infrastructure Fund share price a buy?

It's currently trading at a slight premium to its intraday indicative net asset value (NAV) per unit of $2.9165.

The fund is still rated as a buy by the Dividend Investor service who said it's "a good investment idea for those looking to benefit from exposure to listed, global infrastructure. It's a simple and easy solution for those looking to diversify their investments, providing a nice hedge against some of the more volatile stocks elsewhere in the market."

The post Is the Magellan Infrastructure Fund (ASX:MICH) share price a buy? appeared first on The Motley Fool Australia.

When an investor mentions 'infrastructure' companies on the ASX, one's mind might turn to companies like Transurban Group (ASX: TCL), the famed tollroad operator. Or perhaps Sydney Airport Holdings Pty Ltd (ASX: SYD), the eponymous company behind Sydney's sole international airport. Infrastructure companies have (or at least used to have) a reputation for being amongst the 'safest' investments on the ASX. Sure, you probably weren't going to get yourself a 10-bagger in this sector, but you would get a steady, inflation-resistant stream of income.

However, like most sectors, the coronavirus pandemic has wreaked havoc on this sector, and by extension, this reputation. Transurban suddenly wasn't too defensive when we all had to stay indoors for months earlier in the year, and working from home suddenly became necessary. And I'd wager we don't need to discuss in detail the damage the pandemic has done to airports, as well as the entire travel sector.

That's why this highly diversified infrastructure share might be worth a look today instead.

Enter Magellan Infrastructure Fund (ASX: MICH)

Magellan Infrastructure Fund is an infrastructure investment you might want to consider today if steady income and defensive investing is important to you and your portfolio. This fund isn't a company, instead it is an 'active exchange-traded fund (active ETF). This means that it is essentially a managed fund that you can buy units of on the ASX, just like any other ASX share, rather than having to go through the conventional 'off-market' transactions of a traditional managed fund.

This fund holds between 20 and 40 individual companies hailing from all around the world. A plurality of the holdings are US-listed (41%), but Europe, the Asia Pacific and Canada also feature heavily in the listings.  These companies cover a range of sectors within infrastructure, including airports, toll roads, electricity and water utilities and communications. Incidentally, Transurban is a large holding in the fund, as of 30 September.

Since this fund's inception, it has returned an average of 5.1% per annum. It compares favourably to the funds' index benchmark (the S&P Global Infrastructure Index), which has returned an average of 1.3% per annum over the same period.

Over the past 12 months, Magellan Infrastructure Fund has paid out 11.7 cents per unit in dividend distributions. That gives this fund a trailing yield of 3.99% on current prices.

Is this fund a buy today?

The Motley Fool's Dividend Investor service currently rates Magellan Infrastructure Fund as a 'buy'. Ed Vesely and the team at Dividend Investor like this fund's track record of beating its index, as well as the global diversification it brings to the table (not to mention the yield, of course).

The post One ASX infrastructure share to consider for dividend income today appeared first on The Motley Fool Australia.

Before 2020, infrastructure investments were all the rage for ASX dividend investors.

Cast your mind back to 2019 and interest rates were being dropped to (what was then) record lows. The ASX was exploding, partly as a result. Investors were beginning to gobble up dividend-paying ASX shares in an attempt to replace the government bonds and term deposits that were quickly becoming impotent as true, inflation-beating investments.

And among the favourite dividend shares being gobbled up were infrastructure companies. These companies were some of the 'safest' dividend shares on the market, or so many investors believed. As such, these were the shares in the hottest demand from dividend investors. These investors believed the kinds of cash flows these companies offered were far more robust than other ASX dividend shares like Commonwealth Bank of Australia (ASX: CBA). From end to end in 2019, Transurban Group (ASX: TCL) shares rose roughly 30%, as did Sydney Airport Holdings Pty Ltd's (ASX: SYD).

What kind of world would we live in where people weren't using Transurban's tolled-roads, or flying in and out of Sydney Airport, investors might have asked. I wrote an article back then describing how many investors saw these companies as 'bond proxies', or companies with dividends so safe they could be treated as a fixed-income investment.

Well, 2020 has given that answer and broken this thesis in the most brutal of fashions.

Dividend heroes to zeroes

The coronavirus pandemic has comprehensively destroyed the notion that any company's dividend can be regarded as 'safe' or bond-like. Transurban has been forced to slash its dividend payouts in 2020. Sydney Airport has cancelled its interim dividend entirely.

But that in turn begs the question: what role can infrastructure shares play at all in a 2020 dividend portfolio? After all, it's not just Transurban and Sydney Airport that have cut their dividend in 2020. A range of other former ASX dividend heavyweights have also slashed shareholders' payouts (as I alluded to earlier). That includes all four of the major ASX banks, Ramsay Health Care Limited (ASX: RHC), Woolworths Group Ltd (ASX: WOW), BHP Group Ltd (ASX: BHP) and Woodside Petroleum Limited (ASX: WPL).

So it's not like infrastructure shares are alone in this conundrum. Still, investors have always been attracted to infrastructure companies because of the dividend safety discussed earlier, as well as the perception of these companies owning 'real assets' that offer additional perks like inflation-hedging.

Holding infrastructure investment shares in 2020

So what place do infrastructure investments have in a 2020 portfolio? Well, I think there's still merit in this area for a post-COVID world. Although many infrastructure companies have been buckling under the pandemic, others have been doing just fine. Gas pipeline owner APA Group (ASX: APA) is one such example. It has managed to deliver to its investors a dividend increase this year. That's not a feat many other companies can boast of.

If you'd like a well-rounded portfolio of infrastructure shares instead of trying to pick one or two winners, there's a couple of solutions. The Vanguard Global Infrastructure Index ETF (ASX: VBLD) is one such option. It's an exchange-traded fund (ETF) that holds 139 infrastructure shares from around the world. It offers a trailing dividend yield of 3.37% on current pricing and holds energy retailers, railroad companies, airports, and ports, among others.

The Magellan Infrastructure Fund (ASX: MICH) is another option. It's an actively managed fund that holds between 20 to 40 shares and offers a trailing yield of 4.19%.

If it's infrastructure investment you want, either of these funds would make a nice, balanced option, in my view.

The post The pitfalls of investing in infrastructure in 2020 appeared first on The Motley Fool Australia.

Like the idea of investing in term deposits, but are put off by the disturbingly low rates? Given that the returns on fixed income are expected to remain lower for an extended period of time, why not look at some alternatives in the form of ASX shares?

The risks associated with listed entities are a lot higher than low-risk term deposits, which are protected by the Australian Government's Financial Claims scheme for amounts of up to $250,000.

But, given that the returns from ASX shares can also be a lot higher, here are 2 options that, in my opinion, are worth considering as surrogates for fixed income.

Magellan Infrastructure Fund (ASX: MICH)

This actively managed diversified infrastructure fund invests in a portfolio of 20 to 40 infrastructure shares to ensure investors are not overly correlated to any single company, industry-specific or macroeconomic risk. It deploys the open-ended fund structure, which simply means the price at which units trade on the ASX, tends to mirror the underlying net tangible asset value (NTA) very closely.

The COVID-19 crisis has clearly been a tough time for the fund's portfolio of global infrastructure assets, which include Atmos Energy Corp, Red Electrica Corp SA, Crown Castle International Corp, and Transurban Group (ASX: TCL).

Given that this share is a long-term play, I believe it looks well positioned to benefit from the return to normalcy as the threat of the coronavirus dissipates, with the eventual news of one or more proven vaccines likely to provide a massive kicker.

The fund has a market cap of around $626 million at the time of writing, and typically pays a dividend of around 3%.

The primary objective of Magellan Infrastructure is to achieve attractive risk-adjusted returns over the medium to long-term, while reducing the risk of permanent capital loss. By hedging the bulk of its foreign currency exposure, Magellan Infrastructure is also relatively well protected from adverse currency movements.

While the Magellan Infrastructure share price sits slightly below its NTA of $2.81 (at $2.80 at the time of writing), it's currently trading at an 18% discount to its 21 February high of $3.44. Three years from now, I expect the current share price will have proven to be an attractive entry point.

MCP Master Income Trust (ASX: MXT)

Listed in October 2017 as a fixed-interest credit fund, the MCP Master Income Trust provides investors with direct exposure to the Australian corporate loan market. Having been the exclusive domain of regulated banks, fixed interest credit has largely been off-limits to mum-and-dad investors.

Given that the trust's units have traded with little correlation to public domestic and international equity and bond markets, I think the trust gives investors the means to diversify their portfolios in a way that hasn't been readily available before.

The Trust aims to provide investors with monthly cash income, low risk of capital loss and portfolio diversification by actively managing diversified loan portfolios.

Like other listed credit funds, the MCP Master Income Trust was a major casualty of the COVID-19 market sell-down. The trust's share price swan-dived by over a third from $2.00 on 6 March to a low of $1.26 on 23 March, amid fears of a collapsing oil price and a flailing property market.

It has progressively regained most of that ground, courtesy of improving investor sentiment and a fall in credit spreads – in part due to the propping up done by central banks (notably the Reserve Bank of Australia, and the US Federal Reserve) – and is currently trading a little under its $2.00 NTA at around $1.90.

In my opinion, the underlying strength in MXT's share price reflects its ability to consistently deliver cash income for its investors. The trust returned 5.55% per annum over the twelve months including December 2019, and 5.45% per annum since listing in October 2017.

The share has a market cap of $1.2 billion, which puts it just outside the S&P/ASX 200 Index (ASX: XJO), and it pays a respectable dividend yield of 6.1%.

The post 2 ASX shares to buy as alternatives to the pitiful returns from a term deposit appeared first on The Motley Fool Australia.

Infrastructure is an interesting investment class, should it be part of your investment strategy?

Some investors just group infrastructure into the same asset class as normal shares. Whereas others like to split out different types of businesses on the share market like property, infrastructure and normal businesses.

If you want to buy shares of infrastructure businesses like Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD), then you can purchase them just like if you were buying shares of CSL Limited (ASX: CSL) or Wesfarmers Ltd (ASX: WES).

What's so good about infrastructure?

The attraction of infrastructure is that it can offer reliable cashflow (for distributions and dividends) as well as capital growth over the long-term.

That may sound like the same benefits of a real estate investment trust (REIT). But, there are plenty of office buildings in the CBDs of cities. Shopping centres are everywhere. Small-scale warehouses can be built in many locations across a city.

Infrastructure offers the allure of unique assets. There is only one particular (toll) road for a transport corridor. Airports are unique. There's only one energy grid. And so on. Infrastructure can essentially be a monopoly with reliable demand.

Before COVID-19 came along, Transurban and Sydney Airport were two of the best ASX shares for solid income and consistent growth. Everyone appreciates being able to drive faster to work or school. If you want travel to Sydney from another state or country then flying is the only real efficient option.

You can see the same sort of economic moat power of assets like energy transmission, energy distribution, water utilities, energy storage, telecommunications assets and so on. They are all strong, defensive ideas. 

Is infrastructure a good investment today?

COVID-19 has really put a spanner in the works of many infrastructure businesses. Airports are hardly seeing any passengers at the moment. Sydney Airport is currently showing the number of passengers is down by more than 90% each month, though domestic passengers has slightly increased compared to April and May.

Toll roads are seeing a return of some traffic, but not all of it. Some people may be trying to save some money and some office workers are still at home.

It's hard to say what the right price to pay for Transurban and Sydney Airport is. Low interest rates theoretically increase the valuations of assets. But COVID-19 has caused a large drop in earnings. Who knows when passengers will start flying in the same numbers again? Will a vaccine or healthcare treatment be completely approved, leading to a possible return to life as we knew it before COVID-19 came along?

One option could be an infrastructure investment fund like Magellan Infrastructure Fund (ASX: MICH), which is currency hedged. It's invested in a variety of different infrastructure businesses like Transurban, Atmos Energy, Crown Castle International, Red Electrica, Eversource and Enbridge.

When you're invested in a fund of infrastructure assets then you don't have as much asset-specific risk and you don't need to worry about which particular infrastructure shares to own at any given time. Over the past year and three years the Magellan Infrastructure Fund has outperformed its global infrastructure benchmark by 7.3% and 5.9% per annum respectively.

My preferred ASX infrastructure share

In terms of individual ASX infrastructure shares, my favourite pick is actually APA Group (ASX: APA).

The business owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation's natural gas usage.

APA has increased its distribution every year for the past decade and a half. I think it's a very dependable share.

Foolish takeaway

I think infrastructure can be worth a spot in an investment portfolio. If you want a diversified infrastructure allocation then something like Magellan's offering could work well, otherwise I think APA is the best pick today.

The post Should infrastructure be part of your investment strategy? appeared first on The Motley Fool Australia.

The Magellan Financial Group Ltd (ASX: MFG) has hit a new all-time high, breaching the $60 per share level for the first time ever this morning and cementing founders Hamish Douglass and Chris Mackay's membership in the ASX billionaire's club.

Sentiment around the wealth manager has reached feverish excitement levels, after Magellan wowed investors with significant funds under management (FUM) growth and benchmark-beating returns with its managed and listed-funds over the year so far.

Magellan shares started off 2019 trading for $23.37 but today's new record high translates into a YTD gain of 160% (incidentally vastly outperforming all of Magellan's funds).

What's behind Magellan's success?

As a fund manager, Magellan collects management fees from its stable of listed and unlisted investment vehicles. These fees range from 1.05% for the Magellan Infrastructure Fund (ASX: MICH) to 1.35% for the Magellan Global Trust (ASX: MGG) and most other Magellan offerings all the way up to 1.50% for Magellan's High Conviction Fund (unlisted). As more investors pile into these funds, the larger Magellan's funds become and the more revenue comes in the door.

In addition to this, most of Magellan's offerings also charge performance fees, which levy an additional fee of 20% on any excess returns above a fund's benchmark (usually an index). Since Magellan's funds have had a fantastic year of outperformance (MGG has returned 15.9% over the past year), this has added to the surge in revenue. This also provides a 'snowball' effect – as Magellan delivers outperformance, more investors are drawn into Magellan funds, raising FUM levels.

What are Magellan's numbers like?

Looking at its interim results for the six months ending 31 December 2018, we can see why investors are so bullish on Magellan. FUM growth came in at 35% (to $72.1 billion), adjusted net profits after tax were up 62% to $176.3 million and Magellan raised its dividend by 66% (yielding 2.22% on current prices). These numbers are (obviously) very strong, but the question for investors today is whether now is the right time to be buying into this stock.

Foolish takeaway

Magellan is clearly a quality company with an enviable portfolio of investment offerings. Not many funds managers have consistently put out the kind of performance numbers that Magellan is rolling out every month. However, the company is now valued at $10.75 billion on profits of $176 million. This translates to a price-to-earnings ratio of 49.74. If there is a stock market crash or other cyclical event, it's possible that Magellan's FUM will fall and performance fees will dry up. Investors should keep this in mind when considering a $60 Magellan share price.

The post Why the Magellan share price has hit an all-time high appeared first on The Motley Fool Australia.