By Greg Peel

With cyclical stocks on the nose for longer term investors in Australia and worldwide, given post-GFC risk frustration, defensive stocks have returned to popularity ? not just because of their defensive nature on a capital preservation basis but also because of the yield they offer on distributions. The search for yield has become a fundamental driver of portfolio allocation in recent years, particularly as the burgeoning SMSF cohort adjusts its risk-reward bias. With the RBA now in rate-cutting mode, bank deposits are no longer a panacea.

Aside from the traditional yield defensives of utility stocks and other incremental cashflow businesses, popular yield investments include the many real estate investment trusts (REIT) and infrastructure funds listed on the ASX, usually considered "alternative investments" rather than "equities". There is also a spread of unlisted trusts available to the longer term investor. A lot of over-geared funds were blown away in the credit crisis/GFC period, sparking significant sector deleveraging and consolidation from the survivors. Many such funds continue to trade below net tangible asset valuation, even as their popularity has risen in the post-GFC environment. On that basis there should be capital appreciation as well as attractive yield on offer.

None of this is lost on those wily Canadians. No two countries so far apart are as similar as Australia and Canada ? similar size, similar population, same system of government, same resource-based economy, same monarch, even the same global reputation for being easy-going people. For Australian resource sector companies, a common goal is to achieve a dual listing on the Toronto exchange ? the world's premier resources bourse. For Canadian pension funds, a goal has become to tap into the attractive yield on offer from listed trusts in Australia, safe in the knowledge of transparent prices and laws.

The Trust Company is a leading Australian trustee service offering corporate and personal financial planning. The Trust Company recently brought together a panel of experts including representatives from KPMG and from Austrade Canada to discuss the opportunities presented by the wave of Canadian investment into Australian infrastructure and property and to further understand what Canadians are looking for in terms of long term investments.

Canadian investment in Australian property and infrastructure has risen dramatically in recent years, with Australia now the third largest destination for Canadian direct investment abroad (excluding tax havens). Canadian direct investment into Australia to date is approximately CAD 25bn, making the two-way investment between both countries around CAD 45bn.

Before we turn to the panel's suggestions, we can first note two unsuccessful attempts to date by consortia of Canadian pension funds to take over Transurban ((TCL)) and a successful attempt to acquire Intoll ? one of the two entities created by the split of the old Macquarie Infrastructure Group. Intoll was the fund deemed to be the more "boring" of the two split entities given it held the older, more mature toll road assets (such as Sydney's M2) while Macquarie Atlas Roads ((MQA)) holds the the less mature, developing assets. Analysts deemed Intoll to be offering unexciting but safe and consistent distributions with little capital appreciation potential and MQA to be the higher risk-reward proposition of the two. Transurban is also seen as offering mature but solid distribution attraction.

"Canadian investors are looking for stable returns in the current low-yield environment," notes The Trust Company's Andrew Cannane, "and are showing a strong interest in Australia given its proximity to Asian markets and, in particular, China".

Clearly the Canadian funds are attracted by safe, stable returns. Mature toll roads are testament, although the $3.5bn acquisition of Intoll represents only a small portion of the above-quoted numbers.

"On a relative risk weighting," notes Cannane, "Australia is still a most attractive investment destination as it is highly transparent, it has legal certainty, and 4.3% GDP growth".

So as an Australian longer term investor weighing up risk-reward balance in a portfolio weighted towards yield, consider that even those boring, low-but-safe yield listed entities may still offer otherwise unexpected capital upside if the Canadians are sniffing around.


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