TOKYO -- Friday will mark one year since the first infrastructure funds began trading on the Tokyo Stock Exchange, but limited options and lackluster turnover have some calling for more policy support to invigorate the young market.
"Market size and liquidity are poor; it has not developed into an instrument we can invest in," commented one fund manager from a regional bank. That view is not uncommon among investors who are taking a wait-and-see attitude.
There are currently just three listed infrastructure funds. Their attraction is their high projected dividend yield around 3% to 5%, compared to 1.8% for the Nikkei Stock Average. All three funds lack variety, however, investing only in solar power facilities. Turnover per fund is only about 1% to 2% of the average for stock listed on the TSE's first section, indicating little trading. "The funds have not earned their rights to citizenship" in the market, said Koji Matsushita, chief securities strategist at Daiwa Securities.
Some believe that not enough is being done by policy to support the funds. One such headwind is that solar power is now nearly half as cheap as the price set by the government in 2012, when such power began being sold. "I do not feel there is much upside to the funds," one individual investor said.
Infrastructure funds do receive certain benefits, such as a corporate tax exemption if the fund distributes more than 90% of profit back to investors, but these incentives are limited to renewable energy-related investments. Legislation promoting airport and road development has not followed, becoming a hindrance to increasing the number and type of listed funds.
"The TSE is encouraging renewable energy funds other than solar power, such as wind and biomass, to list, and in the future wants to bring in privatized projects like airports and roads," said a TSE official. Options are limited, however, since the exchange is still in the process of explaining the mechanism and appeal of infrastructure funds to asset management companies and institutional investors.
Looking ahead, the success of real estate investment trusts could serve as a model. REITs began in 2001, and after one year there were only two of them. Now there are 58, with a total market value of 11 trillion yen ($98.8 billion).
The infrastructure fund market is shaping up to be a long-term project. An important condition to its success will be whether the private and public sectors can cooperate to create the right environment for such funds to thrive.