INFRASTRUCTURE stocks should be one of the most defensive areas for investors to have an exposure to during times of financial upheaval, thanks to their steady returns.
But that didn't help during the global financial crisis when they, too, were sold off.
Even so, unlike property trusts, which have also been traditionally favoured by conservative, yield-conscious investors, regulated infrastructure stocks such as SP Ausnet, Spark Infrastructure and Duet, came through the downturn largely unscathed, with their balance sheets intact in contrast to many large property investors that were forced to raise billions of dollars in fresh capital, with investor returns suffering as a result.
Each of these three regulated utility investors controls a spread of infrastructure assets primary electricity and gas distribution where underlying demand is resilient and typically not affected much by the economic cycle.
And falling interest rates help to heighten the potential attractions of this sector of the sharemarket for yield-conscious investors.
"It may be negative for operating earnings but . . . as yield stocks they come into their own," Matt Chambers, analyst with Legg Mason Equities, said of the sector.
But even with their insulation from the economic cycle, problems can emerge.
SP Ausnet, for example, has been caught up in litigation related to Victoria's devastating 2009 bushfires amid allegations that its power lines may have caused one of the fires, raising an element of risk that will take some time yet to resolve.
Similarly, Spark raised $295 million in 2010 at $1 a share as it shored up its balance sheet ahead of a large capital spending program and, last year, it brought its external management "in house", with both moves helping to boost investor support for the stock.
Subsequently, it has enjoyed a steady share price rise of over 30 per cent, prompting some analysts to downgrade their recommendation on the stock, given the decline in the yield and the prospect of better value elsewhere in the sector.
"Duet has a superior yield and growth profile at present," said one analyst, who did not wish to be identified.
"It also has an unregulated asset, the Dampier-Bunbury gas pipeline which helps to differentiate it from others in the sector", which mostly hold regulated assets.
Other analysts are not so sure.
Macquarie Bank analyst Ian Myles favours Spark and Duet, but with Spark preferred at present levels. "The valuation remains relatively robust," he said of Spark. "It has won the points of contention in its dispute with the regulator, the Australian Energy Regulator, and there is the margin for dividend upgrades."
He has a price target for Spark of $1.43.
"There's the potential of another 8? upside for the share price on our valuation, plus a dividend to come," he said. "Duet is fair value at these levels. We'd prefer Spark."
SP Ausnet shares the defensive aspects of the other regulated utility stocks but "at this point we prefer Duet or Spark", Mr Myles said.
SP Ausnet has been hit with a legal claim that faulty and/or defective power lines caused loss and damage, which it is defending.
Mr Myles said declining government bond yields were also positives, since it would help drive steady dividend growth thanks to continuing rises in the size of rated asset bases.