Fund Profile

Sequoia Economic Infrastructure Income 05 June 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Sequoia Economic Infrastructure Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
SEQI offers a high yield from a diversified portfolio of infrastructure loans…
Overview

Infrastructure is essential to an economy and society, and from an investment point of view has many stable qualities. Sequoia Economic Infrastructure Income Fund (SEQI) offers investors a way to generate an exceptionally high yield by lending against infrastructure projects and assets. Unlike some more specialised peers, the trust owns a highly diversified portfolio of loans invested across multiple sectors, from new economy areas like digitalisation and the energy transition to the more long-standing asset types such as railways and ports.

SEQI invests in private debt, which means it typically acts on its own or with a small group of other specialised lenders to supply funding to projects which for a variety of reasons don’t easily fit within a public bond structure. This requires a high degree of expertise when it comes to origination and risk assessment, and this along with the illiquidity of the loans means that highly attractive yields can be earned. SEQI yields 8.8% on an annualised basis at the time of writing, which partly reflects the Discount. However, the portfolio itself yields around 10% in cash terms (i.e. the yield earned on the current market value).

This high yield is generated from a portfolio with a high degree of defensiveness (see Portfolio). For a start, Gearing is not a part of the model, while investments are generally held to maturity. The extra yield comes from a portfolio typically invested in BB/B credit quality investments, at the top end of the high-yield market. Head of portfolio management Steve Cook and team are defensive in sector and security selection, with very little exposure to construction risk, and highly flexible in their ability to allocate across a broad variety of industries. The publication of monthly external NAV valuations brings a high degree of transparency.

The shares trade on a discount of 15.7% at the time of writing (at the tighter end of the discount range for listed infrastructure and credit trusts, reflecting the largest buyback programme in the alternatives space since July 2022, which continues (see Discount)).

Analyst's View

Many of the themes supporting the cash flows to SEQI are some of the most well-established secular growth themes in the world economy: digitalisation, the expansion and “greening” of the power grid, and building out renewable energy, for example. Additionally, there is widespread recognition across the US and Europe that its core infrastructure is in desperate need of renewal. There has been a huge wave of investment in the equity of infrastructure as a result, with global assets at over $1trn. This is creating an attractive opportunity for debt investors: currently the yield-to-maturity of SEQI’s portfolio, which can be thought of as the portfolio’s internal rate of return (IRR) is around 10%, unlevered. This means that the trust offers a way to generate an equity-like return by investing in debt in some highly attractive growth themes, but with much more stability and defensiveness than is available in equities.

This is an asset class that has historically been the preserve of banks and institutional investors, but SEQI makes it available to the mass market. The team is highly experienced, bringing with them a wealth of knowledge from their time originating and managing these investments for investment banks before launching the fund in 2015 (see Management). We think that the trust could be a good 'one-stop shop' for investors seeking to get the diversifying and defensive qualities of infrastructure into their portfolios.

Bull

  • A high dividend yield from a portfolio with relatively low credit risk
  • Highly diversified exposure to a specialist asset class via an experienced team
  • Significant buyback programme offers source of return and demonstrates conviction in portfolio

Bear

  • Complex asset class
  • Yield on proportion of portfolio may fall with interest rates
  • Currency hedging may be expensive in future
Continue to Portfolio

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.