This infrastructure Fund (UTF) yields 8%: Here’s why I’m not buying

The Cohen & Steers Infrastructure Fund (UTF) has become one of the top closed-end funds in the US, with its assets rising to over $3.2 billion. This growth has happened as investors rotate to infrastructure assets at a time when inflation has remained substantially high. 

A recent report by CBRE noted that capital raised by infrastructure funds jumped to a record $69 billion in the fourth quarter. Brookfield Infrastructure Fund V scooped over $28 billion in assets.

At the same time, Blackrock acquired Global Infrastructure Partners in a $13 billion deal earlier this year. Analysts expect that the industry will continue to see demand as central banks start normalizing. 

In a recent report, UBS noted that infrastructure was benefiting from 4Ds: decarbonisation, digitisation, deglobalisation, and demographic changes. 

What is the Cohen & Steers Infrastructure Fund?

The UTF is a closed-end fund that invests in infrastructure companies mostly in the United States. Unlike an exchange-traded fund (ETF), a closed-end fund uses leverage to maximize returns. 

In most cases, because they use leverage, closed-end funds generate stronger returns than ETFs. In the UTF’s case, it has a dividend yield of over 8%, which is higher than what the riskiest companies are yielding. 

The UTF fund is highly diversified, with most of its assets being in the electric industry. The other big categories are corporate bonds, midstream companies, gas distributors, airports, toll roads, and towers.

It is also diversified internationally. Most of its assets are in the United States followed by Canada, Australia, United Kingdom, and France.

Some of the top companies in the fund are the likes of American Tower, Southern Company, NextEra Energy, PPL Corporation, and Dominion Resources. 

Why I’m not buying the UTF fund

There are a few reasons I am not buying the Cohen & Steers Infrastructure fund. First, there are better investment alternatives for income-focused investors. 

For example, the ClearBridge Energy Midstream Opportunity Fund (EMO) has a smaller yield of 6.6% but has a strong track record of performance. Its stock has risen by over 15% this year while the UTF fund has risen by 8.7% this year.

Most importantly, the fund has a long track record of lagging the popular benchmark indices like the Nasdaq 100 and S&P 500 indices. For example, the fund’s total return in the past five years stood at 27% while the SPY, QQQ, and DIA ETFs have risen by 102%, 171%, and 61.85%, respectively.

UTF vs QQQ vs SPY vs DIA

These funds have done better than the UTF fund even though they have a lower dividend yield. This explains why one should always consider an asset’s total return instead of the dividend yield. Data shows that lower-yielding assets generate stronger total returns over time. 

Other funds in the infrastructure fund offer a bigger yield than UTF. For example, the Voya Infrastructure Industrials and Materials Fund (IDE) yields 11.6% while the abrdn Global Infrastructure Income Fund yield 9.21%. The two funds have outperformed the UTF in the past few years.

Third, there are chances that the Federal Reserve will start cutting interest rates later this year, possibly in December. Lower cuts by the Fed will likely lead to rotation from value stocks to risky ones like those in the tech industry. In this case, there is a likelihood that it will underperform the market as investors move to risky assets.

To be clear: the Cohen & Steers Infrastructure fund has been stable in the past few years. It has constantly given investors annual yields of over 8% for a long time. However, as an investment, I believe that there are other better alternatives out there.