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Christine St Anne is Morningstar's online editor.

Last year saw unprecedented falls in global equity markets. As the turmoil in Europe deepened, market volatility intensified. Investors questioned whether any asset class could deliver secure and reliable returns.

According to Morningstar data, global listed infrastructure funds garnered a 20 per cent return over the last financial year. By the end of 2011, the funds posted a 5.66 per cent return. 

While listed infrastructure has a close link to the performance of equities, it should perform more defensively compared to other equities.

A Morningstar report on the sector noted that regulation and inflation are two key factors that enable infrastructure companies to perform in a materially different way compared to other equities.

Infrastructure assets such as water utilities have regulated prices or revenues that distinguish them from other equities.

Regulated pricing takes into account inflation cost and interest rate changes. Under regulated pricing, cashflows tend to be more stable than those of other companies.

Revenue and price rises that are pegged to changes in consumer price indices can also protect certain infrastructure companies from inflation. These companies tend to be toll-road operators and regulated utilities.

The Morningstar report notes that dominant monopolies can pass through cost increases without reprisal more easily than more competitively-exposed industries.

"Conversely, inflation's effect on global equities more broadly is less conclusive. Deflation can have dire consequences, as the sluggish returns from Japanese equities since the 1990s shows. Companies unable to pass on rising input costs can also suffer," the report said.

Over time, Morningstar expects the sector's regulated nature and inflation-linked revenues to offer a differentiated path of returns to other equities and believes listed infrastructure warrants a slice of an investor's existing equities or property portfolio allotment.

Infrastructure assets come under four categories. These include: regulated assets such as electricity transmission and distribution; oil and gas pipelines and water utilities; user-pays assets such as air and sea ports, toll roads and railways; competitive assets such as electricity generation and retail, gas retail and communications; and community and social assets such as housing, public health, education and prisons.

The Magellan Infrastructure Fund [15700] invests in infrastructure assets that are not affected by competition, commodity prices, sovereign risk or technological innovation.

This means the portfolio does not have exposure to power generation plants or Chinese infrastructure assets.