In this podcast, FundCalibre’s managing director, Darius McDermott, talks to Will Argent, manager of the TM Gravis UK Infrastructure Income Fund about the outlook for infrastructure in 2026.

Will explains what was driving the recovery in the sector in 2025, touching on interest rate cuts, M&A activity, government infrastructure plans and regulatory developments. He also discusses the role of renewables, utilities, digital and social infrastructure, and how diversification helps smooth returns across market cycles. Will then explores how infrastructure income compares with equities and bonds, the importance of inflation-linkage and what investors can realistically expect from the asset class looking ahead to 2026 and beyond.

The transcript can be found below.

Darius McDermott

Hello, I'm Darius McDermott from FundCalibre. This is the Investing On The Go podcast. Today, I'm delighted to be joined by Will Argent, who is the manager of the TM Gravis UK Infrastructure Income Fund, which is Elite Rated. Will, good morning.

Will Argent

Good morning, Darius. Thanks for having me.

Darius McDermott

It's nice to talk to you. Let's just dive straight in then. Infrastructure in 2025. How would you summarise what the year looked like, what's worked and what hasn't?

Will Argent

Yes, well, it's 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 government Gilt yields - have remained pretty stubborn. Mid to longer dated reference yields are important for the long dated cash flows that infrastructure companies are exposed to. And, as I said, 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 Autumn Budget. And I think that frustrated a stronger rally in the sector, really.

Other 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, that REMA consultation moved away, we have just been hit, I suppose, by a new consultation into the indexation framework for renewable obligation and feed-in-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 subsidies. So that's a bit of a frustration. But we should get some clarity on that in the near term.

In terms of the 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-ended 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 tailwinds, I mean, you'll be aware, Darius, there's been a broader 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 with the generally positive environment for equities - a bit of equity beta there as well.

Darius McDermott

Some of your last points referred to government and government policy. Maybe we could just touch briefly on the government's 10-year infrastructure plan. Does that have any pros or cons for the infrastructure assets? Is there any way you can benefit the Fund?

Will Argent

Yes, that's a really good point. The government's 10-year infrastructure plan is clearly supportive of private investment in essentially public assets, infrastructure assets. We've seen, in 2025, we've seen 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 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, 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, a top 5 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. These are things we can point to now. Elsewhere, in water, the recent regulatory determinations set up a record level of capital expenditure over the next five year regulatory period. So we have exposures to companies that will be fully involved in delivering that, and it will allow their regulatory asset bases to expand over time.

What else have we got? We have similar sizable investment needs in transmission, energy transmission infrastructure in the UK. This all speaks to the increase in capacity of decentralised renewables across the country. There's huge upgrades, capital expenditure that's required. And I think Ofgem have determined for the current regulatory period, just about to start, about £70 billion into transmission networks up to 2031. So this is to modernise the grid. And again, we have lots of exposure to this theme in the Fund.

Darius McDermott

That's interesting because I wanted to ask you about themes in the Fund. There are a couple of themes, - 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, 3-5 years?

Will Argent

That's a good question. Well, look, I think the Fund is exposed to a real, as you know, a broad diversified spread of UK infrastructure subsectors, really. Those you mentioned, plus some of those I just mentioned, we'd add to that digital infrastructure, digitalisation opportunities, transport, network investment. These are all areas that the Fund is exposed to, and I think in their own right can contribute to the objective of the Fund. All these subsectors to an extent, provide 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, there's going to be a lot of investment-driving growth there, and that could see 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 struggling in terms of their rating in recent years. Income streams continue 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 quantum of discounts to net asset value, at which some of these companies trade, they could provide scope for some strong capital recovery there. I think there's a real mix and blend across the portfolio. And that's what we really want. We want that diversification across the portfolio, going right back to what I was saying at the start of this conversation about traditional equities helping the Fund this year. That range of exposure over time really does help smooth returns. I think different subsectors will be performing while others are not.

Darius McDermott

Like you, I very much hope for a recovery in the renewable space. As with my other job, we have a moderate amount of exposure to those. Fingers crossed for that sector. 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 balance those two income and growth drivers over the last year and maybe into the year ahead?

Will Argent

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 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 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. As that momentum in some of those subspaces in the Fund, I guess, as that peters out, which it always does, we look for other areas of the portfolio that have been perhaps unloved, derated, to be picking up. We see that ebb and flow within the portfolio constantly. But I think, when I think about the Fund I can't identify a single position that we have in there that is really in there just for capital upside growth dynamics by themselves. Everything contributes from an income point of view.

I suppose there are some underlying sectors that have 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 portfolio recycling. But going back to that point, income is the priority. I think growth can come across the portfolio, really, from where these companies are quite lowly rated at the moment.

Darius McDermott

Let's focus on the income then. Investors normally get income from equities or bonds. How do you think the role of infrastructure income would play a role in a portfolio today?

Will Argent

Yeah, it can certainly do a really good job and provide, I think, attractive absolute and relative yields to portfolios. I think, as we speak today, Darius, the fund's trailing 12-month yield is just over 6%, 6. 2%.

Darius McDermott

A very handsome yield.

Will Argent

Yes. And that compares with about 4. 5% on a 10-year Gilt and maybe in the range of 3-4% from UK equity markets, depending on if you're looking at the FTSE 100 or maybe the FTSE 250. I understand that equity income will be able to bolster that a bit. But I still see that as, as I say, attractive on a relative and absolute basis. So we're 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 can see this consistency in income delivery over the Fund’s, a fairly long lifetime now. I think, looking back to your comment about versus fixed income and versus equity income. I think UK infrastructure sits in between from a risk-reward perspective in many senses. I think there's greater potential for performance capital upside versus fixed income, of course. Equally, there's greater prospect for downside side. And then versus equities, I think you essentially reverse that. There's probably less scope for that upside momentum and less scope for a significant downside. So as I said, it sits in between Gilts and bonds at one end and equity risk at the other. But I think, Darius, it can essentially sit there producing income and t's not a huge departure from a fixed income-equity income blend.

Darius McDermott

Yeah, What then about the inflation linkage? Because you touched on that with respect to the government, - I'm going to use the word so you don't have to - interference in the feed-in and the ROC tariffs. But from an income perspective, should I expect an inflationary rise from these type of assets?

Will Argent

On balance, yes, I think that's a reasonable expectation. When I say on balance, I mean across the portfolio. So 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, next year, increasing their distributions in other subsegments in the portfolio. And these 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 Russia's invasion of Ukraine. At that point, you had two or three years of really good dividend growth in the renewable space, whereas we perhaps saw a bit of a hiatus in some of our core social infrastructure names like HICL. So it ebbs and flows. And again, coming back to this idea of diversification and a broader portfolio approach, there are different areas of the portfolio delivering in different ways at different times. 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, our potential to grow the Fund's distribution. Of course, the Fund evolves. It's not static. So the underlying constituent move as well.

Darius McDermott

Okay. If I just ask a final question, what's your outlook for 2026 and 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?

Will Argent

Yes. I think the momentum we've seen in 2025 - 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 a base scenario, I suppose. We'll pay out that dividend yield and then be trying to build on that from a capital performance perspective. But I don't see the 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. It could see a rotation into more defensive asset classes. And were that to occur, that could really catalyse a stronger re-rating in the infrastructure sector. It is more of a safe harbour, more defensive, and the sort of asset class that investors might look to return to more strongly in the event of equity markets perhaps having a correction. I think base case: we’ll continue to deliver income, and a upside case would be driven by more of an asset class rotation in capital markets.

Darius McDermott

So plenty to look forward to in 2026. Will, thank you very much for your time this morning. If you would like to get information on the TM Gravis UK Infrastructure Income Fund, please do visit fundcalibre.com. And if you've enjoyed our podcast today, please do like and subscribe.

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