With cash rates peaking and bond yields back in the spotlight, many income strategies are being re-evaluated. For advisers and paraplanners, the question is no longer “Where can we park money for 5%?” – it’s “What’s going to sustain that income for the next five years?”
UK infrastructure might just be one of the answers. It’s a sector that’s been quietly generating consistent income, even while market sentiment took a nosedive. So this week, we’re revisiting the case for infrastructure in income portfolios – and whether its fundamentals still stack up.
Infrastructure: Out of Favour, Not Out of Options
UK-listed infrastructure funds have had a tough run. As interest rates climbed, discount rates rose, which put downward pressure on the capital value of long-dated income streams – a big hit to assets like schools, hospitals, and renewables with 20–30 year leases.
But not all funds are equal — and the ARC TIME UK Infrastructure Income II Fundis a good case study in how this sector continues to work for the right clients.
- 12-month return (to June 2025): -4.52%
- Current yield: 5.15%, paid monthly
- Occupancy rate: 96%+
- Asset mix: social infrastructure, supported housing, logistics hubs → View the June 2025 factsheet
Despite the drop in NAV, income delivery has remained stable – and for investors in drawdown, that’s arguably more important than daily pricing.
Why Infrastructure Got Bumpy
Here’s what’s been weighing on infrastructure valuations lately:
1. Rising Discount Rates
Higher interest rates reduce the present value of future cashflows, which disproportionately affects assets with long-term revenue contracts — like infrastructure.
2. Political Uncertainty
As highlighted in Professional Adviser’s recent coverage, UK government changes to planning rules and renewable support have created instability, delaying capital investment and spooking markets.
3. Sentiment and Share Price Discounts
Many listed infrastructure trusts are trading at significant discounts to NAV — not necessarily because of performance issues, but due to investor sentiment and sector outflows.
Still a Case to Be Made?
There’s good reason not to throw the baby out with the bathwater.
The fundamentals of income-focused infrastructure remain solid:
- Stable tenants(often government or NHS-backed)
- Inflation-linked rental agreements
- Essential service assetsthat aren’t subject to discretionary spending
That monthly 5%+ yield is still being delivered. And for investors willing to look past current sentiment, the current pricing might even represent value.
How Advisers Are Using Infrastructure Now
According to M&G Wealth’s Q2 2025 investment update, infrastructure:
- Is stabilisingfollowing 18 months of negative flows
- Remains popular with drawdown clients, particularly those aged 60+
- Is being blendedwith other alternative income sources like REITs and corporate debt
Advisers aren’t abandoning infrastructure – they’re simply repositioning itas part of a diversified income strategy, rather than a stand-alone winner.
Portfolio Positioning: What to Consider
When reviewing infrastructure in client portfolios, keep these practical points in mind:
- Match the strategy to the objective– infrastructure is best for income, not growth
- Look beyond short-term returns– is the fund delivering consistent yield?
- Watch for transparency– does the fund disclose occupancy, rent collection, and lease terms clearly?
- Check liquidity– some daily-dealt funds are more suitable for platform use than listed trusts, especially for cautious clients
- Educate clients– infrastructure income is real and physical, but pricing can be volatile
Our View
Infrastructure isn’t broken – it’s just caught in the wrong moment. As rate cuts begin to appear on the horizon, and investor nerves settle, long-duration income strategies like infrastructure could quietly return to favour.
If you’re building portfolios for clients who want predictable income with real-world impact, this sector is still worth serious consideration.
Got questions? Just reach out – no pitch, just people who get financial advice.
Published in the Investment Matters series by the We Complement team Subscribe to our LinkedIn newsletter for weekly insight on what’s moving inside financial planning.