2025 fund picks: International Public Partnerships

The £2.8bn International Public Partnerships Ltd (INPP), is one of Tom Stevenson’s fund picks for 2025. It is an investment trust that owns essential, low risk infrastructure such as schools and hospitals, transport and renewables. These sorts of assets tend to be held in partnership with the government and generate steady, inflation-linked returns.

Tom describes INPP as more of a wild card selection that offers a way to benefit from the Labour government’s focus on infrastructure and public investment. It is managed by a highly experienced and well-resourced team that specialise in this area, hence its inclusion in Fidelity’s Select 50 list of handpicked funds.

Objective and approach

International Public Partnerships aims to provide stable, long-term, inflation-linked returns, based on growing dividends and the potential for capital appreciation. It does this by investing in a diversified portfolio of infrastructure assets and businesses which, through a programme of active management, meets societal and environmental needs both now and into the future¹.

The underlying holdings are generally subject to long-term contractual arrangements with an average remaining investment life of around 38 years. There is also a high degree of management and control of the assets to support their sustained performance².

The underlying portfolio

In total there are 144 separate investments that span a variety of different sectors including: Energy Transmission, Transport, Education, Gas Distribution and Wastewater. Most are located in the UK, which accounts for 72% of the portfolio by value, although the other sites are spread across Europe, Australasia and North America³.

The operational performance and income from the various holdings is mostly based on asset availability or regulated assets, rather than the level of usage or other non-controllable variables. This means that the returns are highly predictable and should not be unduly affected by economic conditions.

Performance and dividends

Since listing in November 2006 the trust has generated a total shareholder return (share price growth plus reinvested distributions) of 197.2%, which is 34.5% more than the FTSE All-Share index. On an annualised basis this is equivalent to 6.4% a year⁴. Please remember past performance is not a reliable indicator of future returns.

Most of the return is in the form of dividends that have increased every year since the initial public offer (IPO) and the Board has already announced a target of 8.58p per share in 2025, up from the expected 8.37p in 2024⁵. The distributions will change from semi-annually to quarterly later this year.

Based on the current share price of 116p and the 2025 target distribution of 8.58p, the shares offer an attractive forward yield of over 7%, which is fully covered by earnings. Please note this yield is not guaranteed. The significant degree of inflation linkage to the underlying investment returns means that the income should be able to rise with inflation.

What does the Board say?

Writing in the interim accounts at the end of June, Chairman Mike Gerrard said that there continues to be a significant need for infrastructure investment across the geographies in which the company invests.⁶

“Governments have a pressing requirement to renew and expand public infrastructure, but continue to be fiscally constrained. The potential for the company to assist in the development and funding of new infrastructure should provide the company with highly attractive growth opportunities in the longer term.”

Discount and buybacks

Like many other investment trusts, the shares have slipped to a sizeable discount to net asset value (NAV) that currently stands at 23%. The Board believes that this materially undervalues the company and has bought back more than £38m of worth of shares under its £60m buyback programme. In the last 18 months there have been asset sales of around £260m at prices in line with the most recent valuations.⁷

How do the costs stack up?

The latest ongoing charges figure is 1.17%, which reflects the specialist and illiquid nature of the underlying holdings⁸.

More on International Public Partnerships

More on Tom Stevenson’s fund picks for 2025

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns in GBP from 20.1.20 to 20.1.25.

Source:

^1,2,3,4,5,8 International Public Partnerships, factsheet, data as at 30 June 2024

^6,7 International Public Partnerships, November 2006 to 30 June 2024

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed marinvestors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. The shares in the International Public Partnerships Limited (INPP) Investment Trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. The Key Investor Information Document (KIID) / Key Information Document (KID) is available in English and can be obtained from our website at www.fidelity.co.uk This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.