by Trent Koch – Portfolio Manager, Global Listed Infrastructure Securities
In an environment of uncertainty, infrastructure investments can provide investors with a sense of reassurance. Regardless of short-term market ‘noise’, every nation depends on roads, utilities, airports, railways, pipelines and wireless towers, in order to function effectively.
These sectors share common characteristics, like barriers to entry and pricing power, which provides investors with the potential for inflation-protected income and strong capital growth over the medium-term.
Even as the world grapples with the complexities of the pandemic re-opening, we believe the outlook for the asset class is positive.
The First Sentier Global Listed Infrastructure Fund invests in a diverse range of assets across a number of regions. However, we see particularly strong opportunities for several infrastructure asset types.
1. Toll roads have shown resilience
Toll roads represent the portfolio’s largest sector overweight, with positions in European, Asia Pacific and Latin American operators. We believe these companies represent exceptional value at current levels, with traffic volumes proving significantly more resilient than those of other transport infrastructure assets. Even where new coronavirus variants have clouded the near term outlook, we remain confident that toll roads will return to normal demand levels as economic activity levels pick up.
2. Gas utilities key to decarbonisation
We believe gas has an important role to play in the years ahead as economies transition to lower-carbon energy sources. The portfolio’s holdings in this sector consist of a Chinese operator benefitting from central government support for the country’s transition away from coal; a defensive Japanese gas utility trading at an attractive price; and specialist US and European names operating from strong strategic positions within niche markets.
3. Water & waste are essential services
Our exposure to these assets consists of stable, income-generating UK and US-listed water utilities, which derive regulated earnings by providing essential services. The pressing need for investment to replace and repair aging water pipe networks in the US represents an additional source of long-term earnings growth. The portfolio has also built a position in a large US waste management company, which stands to benefit from higher waste volumes as the US economy continues to improve.
4. Data centres & mobile towers positioned for growth
As the world becomes ever more digital, operators in these sectors can provide predictable cashflows, underpinned by multi-year contracts with enterprise customers. Further earnings growth is anticipated as telecom operators ready themselves to deploy 5G equipment onto tower sites at scale.
5. Electric / multi-utilities are ready for renewal
A substantial portion of the portfolio consists of high conviction utility holdings. The portfolio’s focus is on companies with the scope to derive steady, low risk earnings growth from replacing ageing distribution networks; upgrading substations and expanding transmission lines; and the replacement of older coal-fired power stations with wind farms and solar power.
With a consistent focus on identifying quality assets that operate in essential, in-demand sectors, we believe our portfolio is well-positioned to provide investors with sustainable inflation-protected income and capital growth.