Global Listed Infrastructure Fund (USD) – Quarterly Update – Q3 2024

Global Listed Infrastructure delivered strongly positive returns during the September quarter, aided by robust quarterly earnings numbers and the US Federal Reserve’s first interest rate cut since 2020. The Fund returned +12.1% before fees¹, compared with a +13.6% return from its benchmark index. Global equities ended the quarter +6.4% higher.

These figures refer to the past. Past performance is not a reliable indicator of future results. For investors based in countries with currencies other than the base currency of the share class, the return may increase or decrease as a result of currency fluctuations.

Performance data calculated since the launch date. Performance data is calculated on a net basis by deducting fees incurred at fund level (e.g. the management and administration fee) and other costs charged to the fund (e.g. transaction and custody costs), save that it does not take account of initial charges or switching fees (if any). Income reinvested is included on a net of tax basis. First Sentier Global Listed Infrastructure Fund, Class I (Distributing) USD shares. Benchmark is the FTSE Global Core Infra 50/50 TR Index from 1 April 2015, prev. UBS Global Infra & Utilities 50/50 TR Index.

Mobile towers rallied on lower interest rates and indications that tower leasing activity (telecom companies seeking to lease space for their equipment on mobile towers) may accelerate in late 2024 and 2025. Utilities / renewables gained on growing awareness of the extent to which demand for electricity is likely to increase over coming years. Rising demand for energy within the US and a keen appetite for US Liquefied Natural Gas exports proved supportive of the Energy Midstream sector.

North American freight railroads delivered positive returns but lagged other infrastructure sectors as freight haulage volumes remained lacklustre. Japanese infrastructure stocks were led lower by its electric utilities, which gave up ground following strong gains earlier in the year. 

The portfolio initiated a position in US tower company SBA Communications, owner and developer of mobile tower portfolios in the US, as well as in faster-growing Latin American and African markets. Consistent with peers, SBA is positioned to benefit as improvements in mobile broadband technology drive demand for mobile communications, video streaming and smart devices. An upswing in the leasing cycle of US telecom companies, combined with easing interest rates, are expected to provide SBA with a favourable operating environment and scope for its valuation multiples to expand.

A position in Chinese toll road operator Jiangsu Expressway was divested after a period of strong share price performance relative to other global toll road operators reduced mispricing and moved the stock lower within our investment process.

The Fund invests in a range of listed infrastructure assets including toll roads, airports, railroads, utilities and renewables, energy midstream, wireless towers and data centres. These sectors share common characteristics, like barriers to entry and pricing power, which can provide investors with inflation-protected income and strong capital growth over the medium-term.

Earnings growth for the asset class is likely to be underpinned by a number of structural growth themes over coming years. We are optimistic about the substantial investment opportunities associated with the decarbonisation of the world’s energy needs. Utilities are positioned to derive steady, regulated earnings growth by building solar and wind farms, and by upgrading and expanding the networks needed to connect these new power sources to the end user. Recent developments have also highlighted the role that nuclear power can play in meeting growing demand for carbon-free electricity.

In addition to the energy transition, electricity demand levels in North America are also set to increase in absolute terms, after years of maintaining roughly consistent levels. This should provide a further tailwind for the earnings of many regulated US utility stocks. It is also likely to bolster the need for transition fuels such as natural gas, which have a crucial role to play in maintaining energy reliability and affordability. As well as benefitting utilities, this is also likely to drive additional demand for North American energy midstream storage and transportation assets.

Digitalisation is another key theme for the asset class. We expect structural growth in demand for mobile data (underpinned by an ever-growing reliance on digital connectivity) to support long-term earnings growth for Towers. The adoption of 5G technology over coming years will require networks to handle increased data speed, as well as a much higher number of connected devices. The surge of interest in AI is driving data center demand, as well as boosting the need for electricity.

¹ Performance is based on VCC ID share class, net of fees, expressed in USD.

² MSCI World Net Total Return Index USD is provided for information purposes only. Index returns are net of tax. Data to 30 September 2024. Source: First Sentier Investors UK Funds Limited/Lipper IM.