Andrew Gill Fund Manager

Heavyweight boxer Mike Tyson said , “ Everyone has a plan , until you get punched in the mouth ,” and for UK infrastructure and property , the blows to sentiment coming from each round of interest rate rises over the two years to August 2023 have been challenging . However , after adjusting from an era of super cheap money to 5 %+ interest rates , things are looking up and now is a great opportunity for investors to re-engage with these sectors .

Real assets such as infrastructure and property are often viewed as having bond and equity qualities . Bond-like income ( e . g . the rent ) creating an attractive , repetitive part of the total return , with equity-like returns coming from movements in assets values . This equity element typically saw negative returns as interest rates increased , but the tide is turning and even before the August interest rate cuts , some sectors were starting to return to growth .

Although just one small step on the rate cutting journey , the Bank of England ’ s first interest rate cut should add further confidence in this recovery . Looking at property , a firmer pathway to lower interest rates is leading to lower borrowing costs , helping close the pricing gap between buyers and sellers , which should aid investment transaction volumes . Property Agent , Savills , reported seeing property market sentiment becoming more positive in their August results 1 .

As more transactional evidence appears , supporting asset values , along with the market expecting further rate cuts bringing the base rate down to 3.5 % 2 by the end of 2025 , you could see the recent capital value recovery accelerate . The evidence from previous market recoveries is supportive . Looking at property following major downward movements in values , after finding their valuation floor in 1993 and 2009 , capital values rose around 15 % over the following twelve months . 3

20 | The Adviser Online