18 December 2025 (pre-recorded 16 December 2025)
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[INTRODUCTION]
Darius McDermott (DM): Hello, I’m Darius McDermott from FundCalibre and this is the Investing on the go podcast. Today I’m delighted to be joined by Will Argent, who is the manager of the VT Gravis UK Infrastructure Income fund, which is also Elite Rated. Will, good morning.
Will Argent (WA): Morning, Darius. Thanks for having me.
[INTERVIEW]
DM: Will, nice to talk to you. Let’s just dive straight in then. Infrastructure 2025, how would you summarise what the year has looked like, what’s worked and what hasn’t?
WA: Yes. Well it is certainly been more favourable compared to recent years. I think that’s reflected most obviously in the positive performance year to date. I think in terms of the environment we’ve had a continuation of the rate cutting cycle, which has been helpful for listed infrastructure. Reference yields though, and by that I mean, you know, government gilt yields have remained pretty stubborn. Sort of mid to longer dated reference yields are important for the long dated cash flows that infrastructure companies are exposed to. And as I say, those reference yields have remained a bit stubborn, which has been a bit of a frustration. Those yields increased quite sharply in the summer and again, preceding the recent budget. And I think that’s sort of frustrated a stronger rally in the sector, really.
Other sort of headwinds: I suppose, more recently we’ve had essentially regulatory overhangs on the renewable sector. We had the review of electricity market arrangements which was an ongoing consultation through much of this year. Ultimately the government chose against moving to a zonal electricity pricing model, which could have been the outcome of this consultation, and instead has left things as they are, that’s a positive for our renewable energy companies in the fund.
However, as soon as that consultation sort of moved away we have just been hit I suppose by a new consultation into the indexation framework for renewable obligation and feeding tariff subsidies that support renewables. So there’s an ongoing consultation now that may see some adjustment to the inflation metric that’s used to inflate those. So that’s a bit of a frustration but we should get some clarity on that in the near term.
In terms of the sort of tailwinds I think we’ve certainly seen M&A appear in the listed infrastructure sector. We’ve seen takeovers of companies owned in the portfolio in the social infrastructure space. These are closed-end investment companies. We’ve had takeovers in the healthcare space as well with a specialist care home REIT acquired earlier in the year as well. Other tails, I mean you’ll be aware Darius has been a broader sort of risk on equity bull market for quite some time now. We do have traditional equities within our fund. These typically provide exposure to utilities in the water or energy sectors. We have communications infrastructure exposure as well. Now, a lot of that is gained through traditional equities, which I think it’s fair to say, have been swept along, you know, with the generally positive environment for equities, a bit of equity be to there as well.
DM: Yeah. And some of your last points referred to government and government policy. Maybe we could just touch briefly on the sort of the government’s tenure infrastructure plan. Does that have any pros or cons for the infrastructure assets? And is there any way you can benefit the fund?
WA: Yeah yeah, that’s a really, really good point. The government’s 10 year infrastructure plan is clearly supportive of private investment in essentially public assets, infrastructure assets. You know, we’ve seen 2025, we’ve seen sort of a lot more discussion about the policy. And I think going into 2026, we’ll see that shift more towards actions and investment opportunities and the sort of frameworks that will underpin those opportunities. I think the infrastructure strategy, the 10 year infrastructure strategy indicates about 500 billion of private sector investment being required alongside about 750 billion in public sector money now. You know, we’ve seen some opportunities already come through and have been essentially seized upon by companies owned in the fund.
So a good example would be international public partnerships. A company held in the fund at top five name their investment in Sizewell C nuclear plant which is a fantastic investment opportunity for the private sector to invest in UK infrastructure. A very long dated infrastructure project in the UK. Elsewhere, we’ve got you know, these are things we can point to now in water the recent regulatory determinations sort of sets sets up a record level of capital expenditure over the next five year regulatory period. So we have exposures to companies that will be, you know, fully involved in delivering that, and it’ll allow their regulatory asset bases to expand over time.
What else have we got? We have similar you know, sizeable investment needs in the transmission energy transmission infrastructure in the UK. This all speaks to you know, the the increasing capacity of decentralised renewables across the country. There’s huge upgrade capital expenditure that that’s required. And I think off gem have determined for the current regulatory period, just about to start about 70 billion into transmission networks over up to 2031. So this is to modernise the grid. And again, we have lots of exposure to this theme in the fund.
DM: That’s interesting because I wanted to ask you about themes in the fund. So there are a couple of themes which, you know, infrastructure is quite a broad church. There’s energy transition, decarbonisation and obviously renewables. Which of those themes do you see as being the strongest over the next, say, three to five years?
WA: Oh yes. That’s a good question. Well, look, I think the fund is exposed to a real broad diversified and spread of UK infrastructure sub-sectors, really. So those mentioned, those you mentioned plus some of those that I’ve just mentioned we’d add to that digital infrastructure, digitalisation opportunities, transport network investment, you know, these are all exposed areas that the fund is to, and I think in their own right can you know, contribute to the objective of all these sub sectors to an extent provide, you know, visible or contracted cash flows that underpin the income objective of the fund.
I think, in terms of potential, I think some sectors offer probably greater growth prospects. So I think some of the sectors I was talking about a moment ago water energy transmission you know, there’s going to be a lot of investment driving growth there and that could see, you know you know, linked performance in the underlying companies that we’re exposed to. But I also think there’s scope for essentially recovery in some of the areas of the portfolio. So the renewables exposure within the fund, these companies have been, you know, that they have been struggling in terms of their rating in recent years. Income streams continue, you know, unabated and support very strong dividend yields in most cases, but in terms of capital performance from the share prices, that’s been pretty weak of late. And I think with the kind of quantum of discounts to net asset value at which some of these companies trade they could provide scope for some, you know, strong capital recovery there.
So, I think there’s a real mix and blend across the portfolio and that’s what we really want that diversification across the portfolio. Going right back to what I was saying at the start of this conversation you know, you know about sort of equities, traditional equities helping the fund this year, you know, that that range of exposures over time really does help smooth returns. I think different sub-sectors will be performing while others are not.
DM: Like you, I very much hope for recovery in the renewable space as with my other job we have a moderate amount of exposure to those. So fingers crossed for that sector. So you’ve mentioned the objective of the fund, and I always think of this fund, and you’ve used the word diversification a number of times, but I always think of this as an income product primarily, but you are looking for some growth as well. How have you managed to sort of balance those two income and sort of growth drivers over the last year and maybe into the year ahead?
WA: So the income objective of the fund to me comes first and foremost. We are trying to deliver a 5% net income yield. We’re well ahead of that in terms of a trailing 12 month yield and have been in recent years. I think you know, essentially all components of the portfolio contribute to that income generation. So the portfolio is not if you like, split into income generators and essentially growth drivers. I’d like to think that that income as well as growth can come from pretty much every part of the portfolio. I think we’ve got companies that are performing well, there’s a momentum in their share prices, and those are delivering growth in terms of capital performance to the fund. And you know, as those that sort of momentum in some of those subspaces in the fund I guess as that peters out, which it always does, we’d look for other areas of the portfolio that have been perhaps unloved rated to be picking up. We see that kind of ebb and flow within the portfolio constantly.
But I think when I think about the fund, can’t identify a single position that we have in there that is really in there just for sort of capital upside growth dynamics. You know by themselves everything contribute contributes in an income. From an income point of view, I suppose there are some underlying sectors that have sort of faster growth within their underlying businesses or areas of focus. So I think in digitalisation we can see perhaps scope for more frequent resetting of contracts that can drive upside. We have one company in particular that tends to be a bit more aggressive in recycling underlying assets. And we could see some upside driven by essentially crystallisation of value through sort of portfolio recycling.
But going back to that point, income is the priority and I think growth can come across the portfolio really from where these companies are quite lowly rated at the moment.
DM: Yeah. So let’s focus on the income then. Income investors normally get income from equities or bonds. How do you think the role of infrastructure income will play a role in a portfolio today?
WA: Yeah, I, well, they can certainly do a really good job and provide I think attractive absolute and relative yield to portfolios. I think, you know, as we speak today, Darius, the fund trailing 12 month yield is just over 6.2% [DM: A handsome yield] Yes. And that compares with about 4.5% on a 10 year gilt. And maybe in the range of 3% to 4% from UK equity markets, depending on, if you’re looking at the, you know, FTSE 100 or maybe the FTSE 250 I understand that equity income will lean more you know, will be able to bolster that a bit. But I still see that as as I say, attractive on a relative and absolute basis, you know so we are aware that people use the portfolio as a source of regular, very consistent income. The fund is approaching its 10 year anniversary actually. So, you know, you can see this consistency in income delivery over the funds fairly long lifetime now.
I think looking back to your comment about versus fixed income or versus equities equity income, I think UK infrastructure sits in between from a sort of risk reward perspective. In many senses, I think there’s greater potential for capital performance, capital upside versus fixed income, of course. Equally there’s greater prospect for downside. And then versus equities, I think you you essentially reverse that. There’s probably, you know, less scope for that sort of upside momentum and less scope for a significant downside. So as I say, it sort of sits in between sort of gilts and bonds at one end and equity risk at the other. But I think it can essentially sit there producing income and it is not a huge departure from a a sort of a fixed income equity income blend.
DM: Yeah. What then about the inflation linkage, because you touched on that with respect to the government, I’m gonna use the word so you don’t have to – interference – and tariffs, but from an income perspective, should I expect an inflationary rise from these type of assets?
WA: On balance, yes, I think that’s a reasonable expectation. When I say on balance, I mean across the portfolio. So you know, I mean, I’m certainly not suggesting this is going to be the case, but were renewables to let’s say have a hiatus in terms of dividend progression. I can see other areas of the portfolio you know, next year I can see other areas of the portfolio increasing their distributions you know, in other subsegments in the portfolio. And that, you know and these kind of transitions will occur. It wasn’t so long ago that the renewables were really increasing their dividend distributions aggressively on the back of favourable market dynamics in terms of power prices a lot of which was driven by even Russia’s invasion or Ukraine.
At that, that point, you know, you had a two or three years of really, really good dividend growth in the renewable space, whereas we perhaps saw a bit of a hiatus in some of our core show social infrastructure names like Kel. So, it ebbs and flows and again, coming back to this idea of diversification and a broader portfolio approach you know, there are different areas of the portfolio delivering in different ways at different times.
So, back to your original question we absolutely see scope for on balance the underlying companies to grow dividends next year, and for that to feed through to us, to our potential to grow the fund’s distribution. Of course the fund is, it evolves, it’s not static, so the underlying constituents move as well.
DM: Okay. If I just ask a final question, what’s your outlook for 2026 and the infrastructure as an asset class? Is it a yield type return? I know we’ve talked about yield and growth and recovery from the renewables. Are you optimistic about 2026 and the fund and the asset class?
WA: Yes. I think the sort of momentum we’ve seen in 2025, you know we have seen a decent upward performance in the fund. I think that can continue through into the new year and beyond. In terms of base case, I do think that yield should always be, you know, that’s always a kind of base scenario, I suppose, you know, we’ll pay out that dividend yield and then be trying to build on that from a capital performance perspective.
But you know, I don’t see the sort of emergence of any new headwinds. I do think after a very strong protracted period of strong equity performance and perhaps slowing economic trends a weaker outlook in the UK, you know, it could see a sort of rotation into more defensive asset classes and were that to occur, you know, that could really catalyse a stronger re-rating in the infrastructure sector. It is a more more of a safe harbour, more defensive and the sort of asset class that investors might look to return to more more strongly in the event of you know, equity markets perhaps having a correction. So, I think base case will continue to deliver income. And a sort of upside case would be driven by more of an asset class rotation in capital markets.
DM: So plenty to look forward to in 2026. Will, thank you very much for your time this morning. And if you would like information on the VT Gravis UK Infrastructure Income fund, please do visit fundcalibre.com and if you’ve enjoyed our podcast today, please do like and subscribe.
