Are the returns of infraMetrics® indices smoothed?

Answer

No, infraMetrics® index returns are not smooth i.e. they are not serially correlated, and they provide a reasonable proxy of the risk of the unlisted infrastructure asset class.

It is well known that contributed indices that use appraisal values for private assets tend to exhibit 'smooth’ returns that do not reflect the market price of risk or its variance over time. This is the case if we look at two such indices for unlisted infrastructure equity (see table).

However, the infra300 and other infraMetrics indices are calculated indices that rely on a mark-to-market methodology that captures the variability of the unlisted infrastructure equity risk premia, takes into account the duration of infrastructure investments, as well as any changes in their future cash flows. As a result, infraMetrics indices exhibit much higher volatility and realistic Sharpe ratios than other indices using appraisals (see table below).