Diversification benefits of listed infrastructure

Abstract

According to the infrastructure investment narrative, infrastructure is less exposed to business cycles and less affected by short term events, implying a potential diversification benefit in a mixed asset portfolio. Does the same characteristics hold for listed infrastructure? And should listed infrastructure be treated as a separate asset class? This paper seeks to answer those questions through a comprehensive analysis consisting of a mean-variance portfolio optimization, a mean value-at-risk optimization and a mean-variance spanning test. Weekly return indices from Bloomberg spanning from 2003 to 2016 was used in the analysis. This paper is not supportive of the claims that listed infrastructure should be treated as a separate asset class, nor that it improves the mean-variance tradeoff in a global mixed asset portfolio.