Hence, we view the utilities and infrastructure sectors as attractive defensive alternatives to government bonds.
Both sectors produce consistent income with low volatility and have historically been less correlated to traditional asset classes.
The net effect of an allocation to these sectors is the addition of slow and steady growth exposure in the portfolio.
The managers we select in this space focus on global companies with high barriers to entry that fulfil a critical need in their respective markets.
Moreover, far from being boring, the best of these companies can grow at a steady pace.
This is due to either increasing demand for their services, supported by both developed market upgrading and developing market growth, or helped by regulatory regimes allowing companies to increase prices in line with inflation.
Inflation hedge
In addition, these companies get exposure to some of the fast-growing areas using renewable energy, while still offering better downside protection when sentiment turns.
Their defensive nature, tied to structural growth, is also favoured as investors rotate out of cyclical trades, such as tech or industrials, during periods of choppy market weather.
Were inflation to rise, both utilities and infrastructure act as valuable hedges, with many companies in the sector possessing inflation-linked cash flows, which can act as a portfolio ballast in times of rising prices.
They also deliver high and rising dividends.
As central banks run out of monetary stimulus tools, we are likely to see a pivot from monetary stimulus towards fiscal stimulus.
We expect infrastructure names to benefit quite strongly from this tailwind.
Two utilities and infrastructure funds, the Miton Global Infrastructure Income fund and the Ecofin Global Utilities and Infrastructure trust, display these attributes.
The managers of both of these funds have decades of experience investing in these sectors.
They provide global diversified exposure, away from the political risk in the UK and, in the case of the Ecofin trust, trade on an attractive discount, while pure infrastructure trusts in the sector have traded on hefty premiums for some time (note that the Miton fund, being an open-ended fund, always prices based on the value of its assets, without a premium or discount).
No one knows exactly when, or if the bond market might blow up.
However, given current relative valuations, we believe there is a strong investment case for holding utilities and infrastructure equities that offer attractive, predictable and growing dividend yields without foregoing capital growth.
Vincent Ropers is co-portfolio manager of the TB Wise Multi-Asset Growth Fund
