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AIG Infrastructure and Economic Reform Fund: The Sleeping Giant in Infra Space
April 11, 2012

AIG Infrastructure and Economic Reform Fund is the best performing fund on our platform. In this article, we have analysed the performance and strategy of the said fund and advise investors to take an exposure in the long term growth story of India.

Author : iFAST Research Team

 AIG Infrastructure and Economic Reform Fund: The Sleeping Giant in the Infrastructure Space

Key Points

  • AIG Infrastructure and Economic Reform Fund (AIG INFRARF), is the best performing fund in its category
  • The fund invests in companies in the infrastructure space and those  related to the economic development of India
  • Macroeconomic factors and various high frequency data are turning favorable for companies in this space.
  • Recent developments from the government are also looking favorable for Infrastructure companies.

The Indian economy, the world’s second fastest growing economy, with a growth rate of more than 7% in recent times has seen rapid development in the last decade. However, the economy will not be able to sustain this growth without improvement of basic infrastructure which is relatively poor compared to other developing economies. The poor infrastructure has resulted in hindering the growth of the economy. To improve this bottleneck and facilitate the basic infrastructure in the country, India needs serious effort and huge investments in the infrastructure space.

The government has recognized the need of developing roads, power, railways, ports,  etc.  and has taken serious effort to improve them. The various steps taken by government that provides comfort for development of the infrastructure sector are outlined below:
The infrastructure spending which was 5.7% of GDP in base year (FY2007-08) of 11th Five Year Plan has grown to 8.5% of GDP in the final year (FY2011-12) of the 11th Five Year Plan. Around 76% of the planned investment of this Plan has been achieved till August 2011.  In the 12th Five Year Plan, the government has proposed to spend Rs. 45 lakh crore or US$1trillion on infrastructure development, which is more than double the Rs. 21 lakh crore planned in the 11th Five Year Plan. This later got increased to around Rs. 50 lakh crore in this year’s Union Budget. The Planning Commission has emphasized in increasing the infrastructure investment from 8% of GDP in the base year (FY2012-13) to 10% of GDP in the final year (2016-17) of the 12th Five Year Plan. The Government has also focused on  providing easy financing to infrastructure projects. They have increased the FIIs limit in infrastructure bonds and reduced the tax on ECB for power projects. Issuance of tax free infrastructure bonds has been increased to Rs. 60,000 crore from Rs. 30,000 crore to facilitate the financing of existing projects. We are of the view that this huge spending on the infrastructure space will allow the infrastructure companies to grow. In addition to this, we feel that the companies in the infrastructure space are trading at reasonable valuations that will provide the fund manager a leeway to build a portfolio of good companies with adequate margin of safety. Although the infrastructure companies have underperformed since mid 2010 due to consistent increase in interest rates and policy paralysis, we have been maintaining a positive stance on this theme.

Fund Focus

AIG Infrastructure and Economic Reform Fund, managed by Huzaifa Husain since June 2009, is the best performing Infrastructure fund on our platform. The fund invests in companies involved in the economic development of India as a result of potential investments in infrastructure and unfolding economic reforms. In short, the fund manager will scout for companies which will benefit from the huge spend expected from infrastructure and the reforms that will be unleashed in the coming years.

Investment Strategy

While Infrastructure is recognized as a crucial input for economic development, there is no clear definition of infrastructure according to the current usage of the term in India.However, the fund endeavors to follow the definition of infrastructure as defined by Empowered Sub-Committee of the Committee on Infrastructure, Planning Commission of India and invests in companies which fall under the sectors defined by the same. At the same time, in the name of economic reforms, which is the other theme of this fund, it invests in companies which may affect the fiscal position of the country like subsidies etc.

The fund invests across market capitalisation and as per our analysis the average exposure to large cap stocks is close to 66% since inception. The fund’s large-cap stock exposure provides cushion to the fund during market downturns. The fund had higher exposure to small and mid cap companies when valuations were relatively cheap. Our analysis further shows that the average exposure to small caps was ~19% till July 2009 and since then the exposure in this segment has remained around 3%. This could be attributed to the change in the fund manager since June 2009.

Cash is treated as a residual strategy and the fund does not take any cash calls. It believes in remaining fully invested in equities. However, at times due to its thematic nature and lack of opportunities and right valuations, the cash levels may vary.

Chart 1: Fund’s equity allocation during market cycle

The allocation to equities was below 90% from October 2008 to February 2009 when equity markets was close to its bottom, while it was increased to 91% in March 2009, the month when the markets bottomed out. The fund’s equity exposure had gone as high as around 98% in May 2009. However, the equity exposure was as low as 75% in November 2010 when the markets were close to its all time high and the fund manager preferred to sit on cash to the tune of ~ 24%. Since then, considering the volatile scenario in the markets, the equity exposure has remained below 90% except for the month of August 2011.

A closer look at portfolio makeup reveals that the fund manager has actively managed the portfolio. The core holdings of the portfolio namely are Coromandel International, Indraprastha Gas, Torrent Power, Gujrat State Petronet and AIA Engineering which have been held since June 2010. The fund manager is currently positive on the following sectors: Industrial Gases & Fuels, Engineering – Construction, Power Generation/Distribution, Mining & Minerals and Engineering as they constitute close to 53% of the portfolio as on January 2012. The fund manager believes that the growing need of ‘Natural Gas’ as an alternate to fuel resources will provide opportunities for these companies to grow big. Companies engaged in providing infrastructure for Natural Gas are also likely to benefit in the near future. The fund has highest exposure to this sector with Petronet LNG (8% of the portfolio) being the top holding as on January 2012. Huzaifa is also of the view that the companies engaged in power transmission and distribution are going to be the next best bet and the fund has more than 9% exposure to this sector. The fund’s other sectoral calls include the ‘Engineering – Construction’ sector, which they entered in August 2011 with a meager exposure of 3.82% which has gone up to 13.42% by January 2012. This is because the fund manager believes that the companies engaged in Road, Road Construction and Engineering are poised do well and hence has  entered into stocks like  IRB Infrastructure, Shadbhav Engineering and L&T in August and  September 2011.  The exposure to Fertilizer sector was 11% in November 2011 which got reduced to 7.29% in January 2012. The fund manager is of the opinion that companies owning natural resources are also going to get benefitted as resources prices are now being linked to global market prices. So,  companies like Coal India or Gujarat Mineral Development Corporation are likely to benefit.  In addition to this, Public Sector Banks was one of the fund’s top holdings till October 2009 after which the exposure to the same had been reduced to ~2% by September 2011. Currently, it is one of the few infrastructure funds that do not have any exposure to the banking space. The growing non-performing assets and increase in restructured loan in the banking sector is a cause of concern for the fund manager. The fund also does not invest in private sector banks because the fund manager believes that these banks do not participate significantly in economic reforms.


Although AIG Infrastructure and Economic Reform Fund is relatively new in its category,  the compelling performance of the fund has proven its presence in this domain. The outperformance in the downturn market is also fascinating. During the sharp fall of 2008 from 11 August 2008 to 27 October 2008, a period when the Sensex was down by 45.11% and category average was down by 43.47%, this fund was down by 40.81%. Even during 2010 (5 November 2010 to 10 February 2011), when markets got corrected, the fund outperformed its category average by more than 4%.

Chart 2: Relative performance of AIG Infrastructure and Economic Reform Fund with BSE 100, CNX Infrastructure and S&P CNX Nifty indices

Chart 2 shows the relative performance of the fund in comparison with BSE 100, CNX Infrastructure and S&P CNX Nifty indices since its inception. The fund has slightly underperformed against broader indices like BSE 100 or S&P CNX Nifty since inception and this could be attributed to the fact that the infrastructure theme as a whole has taken a beating for sometime now. The monthly investment of Rs.10, 000 in AIG Infrastructure and Economic Reform Fund since inception would have delivered Rs.5, 41,476 on a total investment of Rs.4,80,000 as on 29 February 2012.

Our Take on the Fund

AIG Infrastructure and Economic Reform Fund was launched at a time when the global and domestic markets were going through a tough phase. The performance of the fund during the last four years, which saw markets going through  volatile phases, shows the expertise of the fund management in maintaining consistency. Although the infrastructure theme is going through a bad phase, we are of the view that this will show a turnaround as the government, which is the biggest stakeholder, is showing a willingness to solve issues pertaining to this sector and making it more conducive for private sector participation. At this juncture, we would advise our investors to take an exposure to AIG Infrastructure and Economic Reform Fund which, unlike other funds in the industry, is true to its theme. Hence, investors can take part in the long term growth story of India with an investment horizon of more than 5 years.

Details of AIG Infrastructure and Economic Reform Fund

Investment Objective

To generate long-term capital appreciation from a diversified portfolio of predominantly (at least 65%) equity and equity-related securities of companies involved in economic development of India as a result of potential investments in infrastructure and unfolding economic reforms.

Inception Date


Benchmark Index

BSE 100

Fund Manager

Huzaifa Husain

AUM (as on 29 February 2012)

Rs. 98.40 crore

Entry Load


Exit Load within 12 months


To invest into this fund, click here

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.

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