ASGI - IDE: Global Infrastructure Fund 9% Yield

Summary

• Voya Infrastructure, Industrials, and Materials Fund (IDE) is an equity-focused closed-end fund.
• The CEF has a global mandate, focusing on infrastructure and telecom stocks.
• The fund has a managed distribution policy, which generates a 9% current dividend yield.
• The fund exposes disappointing long-term results, despite its ability to write covered calls on its holdings in order to dampen negative returns during bear markets.

Thesis

Voya Infrastructure, Industrials and Materials Fund ( IDE ) is an equity focused closed end fund. The fund has a global reach, and per its literature:

* Seeks to focus on global companies that will potentially benefit from increased government and private infrastructure spending.

* Intends to invest in a broad range of companies from the infrastructure, industrials and materials sectors using global multi-factor stock selection models and fundamental input from sector analysts.

* Seeks enhanced total return potential by selling call options on select equity indices, securities or ETFs

Currently, only half of the fund's investments are U.S. based, with the rest having a wide geographic distribution. Its largest current holdings fall in the 'Electric Utilities' and 'Integrated Telecommunication Services' sectors. As per its above stated goals, the fund's mandate is very broad. Broad mandates with global reach usually entail a high amount of risk factors, which in turn translate into poor long term results. IDE does not disappoint from this angle, having posted a negative 5-year total return and a paltry 4% 10-year return figure. The poor return figures come on the back of the ability to also dampen negative returns via call writing. It is a bit surprising that the fund has been so poor at generating returns when having a large tool-kit at its disposal.

The fund is used to trading at a discount, having spent most of the past decade at levels discounting the market price by 10% to its net asset value. We believe this is warranted since the vehicle has not been able to generate sufficient alpha to justify its fees. Currently, the fund has a -15% discount to NAV which we expect will persist in the near future. Do not expect this CEF to pull to flat to its net asset value.

IDE Holdings

The fund holds a global portfolio of stocks that mainly fall in the 'Electric Utilities' and 'Integrated Telecommunication Services' sectors:

Its top holdings are as follows:

The portfolio is fairly granular, with no individual name account for more than 3% of the entire holdings. From a geographic standpoint, the U.S. accounts for roughly 50% of the exposure:

The fund has the ability to write covered calls and has done so on 34% of its portfolio currently:

We can see the strategy being fairly aggressive, with the fund writing 'ATM' (i.e. at the money) calls. The at the money calls have the highest delta versus out of the money options, meaning they will gain the most if the market moves down.

IDE Performance

The fund has had a dreadful 2022, being down more than -16%:

We are comparing the CEF with the Cohen & Steers Infrastructure Fund ( UTF ) and the Aberdeen Standard Global Infrastructure Income Fund ( ASGI ), another two CEFs that fall roughly in the same category. IDE manages to underperform both:

A picture is worth a thousand words, they say. Let us have a quick look at a 5-year total return graph. IDE is down -11% while UTF is up more than 51% in the same time-period. Fairly shocking. ASGI is a fairly new fund, having been started in 2020, but it has also managed to post a positive performance since inception.

At the end of the day, from a retail investor perspective, it is fairly impossible for us to opine on the individual equity selections made by the portfolio managers for IDE. However, the proof is in the pudding they say, and long term, good portfolio managers tend to post robust results. There are always economic cycles, but when we zoom out the performance period for a long time-frame, we can generally see the alpha generating capabilities of a portfolio management team. The results for IDE are in, and they are a poor showing.

IDE Distribution

The fund has a managed distribution policy:

The Fund was granted exemptive relief by the U.S. Securities and Exchange Commission (the "Order"), which under the Investment Company Act of 1940, as amended (the "1940 Act"), permits the Fund to include realized long-term capital gains as a part of its regular distributions to Common Shareholders more frequently than once per taxable year ("Managed Distribution Policy"). Pursuant to the Order, the Fund's Board of Trustees (the "Board") approved the Managed Distribution Policy and the Fund adopted the policy which allows the Fund to make periodic distributions of long-term capital gains.

Under the Managed Distribution Policy, the Fund makes quarterly distributions of an amount equal to $0.229 per share. You should not draw any conclusions about the Fund's investment performance from the amount of this distribution or from the terms of the Fund's Plan.

A managed distribution policy for IDE really boils down to the fund disbursing $0.229 quarterly, even if it does not make this amount of cash-flows from its underlying assets. However, in 2022 the CEF has been able to trade its way to a full dividend coverage:

We can see the bulk of the coverage comes from short-term capital gains in 2022.

Conclusion

IDE is a global infrastructure equity CEF. The vehicle has a broad mandate and a global focus, being able to also write covered calls on its portfolio. The fund currently employs this strategy on 34% of its portfolio, but has been unable to outperform its peers, or generate a positive 5-year total return for that matter. While theoretically the vehicle should be able to provide investors with a constant stream of cash-flows from a dividend generating asset class, IDE has been unable to correctly trade the market and provide positive total returns. The CEF is currently trading at a -15% discount, and rightfully so. Expect significant discounts to NAV to persist for this fund. New money looking to enter the space should steer away from IDE. Existing shareholders might look into swapping for the Cohen & Steers Infrastructure Fund or the Aberdeen Standard Global Infrastructure Income Fund, much better performing peers in the space.

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