This is a financial promotion for The First Sentier Global Listed Infrastructure Fund. This information is for professional clients only in the EEA and elsewhere where lawful. Investing involves certain risks including:
- The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
- Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares.
- Single sector risk: investing in a single economic sector may be riskier than investing in a number of different sectors. Investing in a larger number of sectors helps to spread risk.
- Listed infrastructure risk: the infrastructure sector and the value of the Fund is particularly affected by factors such as natural disasters, operational disruption and national and local environmental laws.
- Concentration risk: the Fund invests in a relatively small number of companies which may be riskier than a fund that invests in a large number of companies.
- Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
For details of the firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information.
For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.
If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.
Market review
Global Listed Infrastructure delivered mixed returns in June, as economic reopening optimism was tempered by coronavirus variant concerns. The FTSE Global Core Infrastructure 50/50 index dipped -1.1%, while the MSCI World index^ ended the month +1.5% higher.
The best performing infrastructure sector was Towers (+6%), on the view that the rollout of next-generation networks would be supportive of tower earnings growth. Lower bond yields provided an additional tailwind to these interest rate sensitive companies. Pipelines (+5%) also gained against a backdrop of higher energy prices and increasing hydrocarbon demand.
The worst performing infrastructure sector was Multi-utilities (-3%), as investors sought assets with more sensitivity to increasing levels of economic activity. In the Railroads (-2%) sector, Japanese passenger rail operators gained as the country’s vaccine rollout accelerated. However North American freight rail stocks lagged despite consistently strong volumes, on concerns that unusually hot weather in the US and Canada may affect Agriculture haulage volumes.
The best performing infrastructure region was Canada (+3%), led higher by substantial gains for its pipeline operators. The worst performing infrastructure region was Latin America (-2%), reflecting underperformance from Brazil’s utility stocks.
Fund performance
The Fund returned -2.0% after fees1 in June, 89 bps behind the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).
Annual Performance (% in USD) to 30 June 2021
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 share class currency, the return may increase or decrease as a result of currency fluctuations.
Performance figures have been 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. Source: Lipper IM / First Sentier Investors (UK) Funds Limited. *The benchmark changed from the UBS Global Infrastructure & Utilities 50-50 Index on 01/04/2015.
The best performing stock in the portfolio was US tower operator SBA Communications (+7%), which increased along with its domestic and international peers American Tower (+6%) and Inwit (+4%). The tower industry is benefitting from continued network investment in 5G to cope with rising data consumption. Ericsson’s June Mobility Report reported 46% year-on-year growth in mobile network data traffic globally.
The portfolio’s pipeline holdings delivered positive returns. Natural Gas Liquids-focused Enterprise Products Partners (+2%) increased on the appeal of its highly integrated asset footprint, strong balance sheet and attractive valuation multiples, including a ~7.5% dividend yield. Liquefied Natural Gas exporter Cheniere Energy (+2%) continued its strong run of performance, aided by keen demand from Asian customers. The stock is uniquely positioned to benefit from the key role that natural gas is expected to play as a transition fuel over coming decades. The ongoing bidding war between Pembina Pipeline (+2%) and alternative asset manager Brookfield for Canada’s Inter Pipeline (+15%, not held) further illustrated the keen demand for energy infrastructure assets.
Australian infrastructure stocks also performed well. Transurban (+4%) was supported by the continued resilience of traffic volumes on its networks of Australian and North American toll roads, in addition to lower bond yields. Freight rail operator Aurizon (+3%) held a well-received Investor Day, highlighting significant operational efficiency improvements; and outlining plans to expand its bulk haulage business (iron ore, cement, metals, grain, livestock) in order to mitigate the medium term decline in thermal coal haulage volumes.
The worst performing stock in the portfolio was China Gas (-18%). The company’s share price fell sharply after a fatal gas explosion in a residential neighbourhood in central China’s Shiyan City. It was the first major gas accident faced by China Gas in over 20 years. Preliminary reports suggest the operator, a Joint Venture company partly owned by China Gas, failed to conduct the required safety checks. In previous accidents at other gas utilities, responsibility has been borne at JV level rather than by the group-level company. We expect a similar outcome for China Gas in this case.
US utilities underperformed despite solid fundamentals, moderating bond yields and a lack of material company-specific news. Laggards in this space included Xcel Energy (-6%), Avista (-6%), Pinnacle West (-3%) and Dominion Energy (-3%). Factors that should prove supportive of the sector over the medium term include regulatory frameworks with scope for allowed returns to be raised if inflation increases; and structural earnings growth from the replacement of fossil fuels with cheaper, cleaner renewables.
European transport infrastructure also lagged as the spread of the Delta coronavirus variant threatened to weigh on the continent’s summer tourism volumes. These concerns affected toll road operators Eiffage (-5%) and Vinci (-3%), as well as airport operators Flughafen Zurich (-4%) and AENA (-4%). Italy’s Atlantia (-5%) also lagged, despite announcing that part of the €8 billion proceeds of its sale of the Italian motorway concession ASPI would be used to fund a share buy-back of between €1 and €2 billion (7% - 15% of its market capitalisation) next year, in addition to a dividend payout of €600 million (a 4.5% yield) each year between 2022 and 2024.
Fund activity
The Fund divested its holding in regulated US electric and gas utility NiSource after a period of strong performance saw it move to a lower ranking within our investment process.
Market outlook and Fund positioning
The Fund invests in a range of global listed infrastructure assets including toll roads, airports, railroads, utilities, pipelines, and wireless towers. These sectors share common characteristics, like barriers to entry and pricing power, which can provide investors with the potential for inflation-protected income and strong capital growth over the medium-term.
A key question for investors is whether current rising prices are a transitory phenomenon, or whether the global economy is now about to embark on a sustained period of higher inflation. Infrastructure assets are typically able to increase prices in line with inflation. This can be achieved via the terms of their regulatory frameworks, concession agreements or customer contracts; or in some cases by operating from a strong strategic position with limited competition. Accordingly, infrastructure assets can often maintain and grow earnings in real terms, supporting a stable and growing distribution yield over time. This history gives us confidence that listed infrastructure would fare relatively well in the event of a higher inflation environment.
The asset class is also set to benefit from a number of other positive drivers. Government attempts to bolster economic fundamentals through infrastructure and green energy stimulus plans are likely to prove supportive of many global listed infrastructure firms. In particular, the ongoing repair and replacement of old energy transmission and distribution grids, along with the accelerating build-out of renewables, should represent a steady source of utility earnings growth over many years.
Ever-increasing demand for mobile data / connectivity continues to underpin steady earnings growth for Towers and Data Centres, insulating them from the ebbs and flows of the broader global economy. There is also scope for a material recovery in traffic / passenger volumes across coronavirus-impacted infrastructure sectors such as toll roads, airports and passenger rail, as vaccine programs ramp up globally.
1 Performance is based on VCC ID share class, net of fees, expressed in USD.
^ MSCI World Net Total Return Index, USD.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
Important Information
This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.
This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this information.
References to “we” or “us” are references to First Sentier Investors.
In the UK, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743. In the EEA, issued by First Sentier Investors (Ireland) Limited which is authorised and regulated in Ireland by the Central Bank of Ireland (registered number C182306) in connection with the activity of receiving and transmitting orders. Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland number 629188. Outside the UK and the EEA, issued by First Sentier Investors International IM Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SC079063.
Certain funds referred to in this document are identified as sub-funds of First Sentier Investors Global Umbrella Fund plc, an umbrella investment company registered in Ireland (“VCC”). Further information is contained in the Prospectus and Key Investor Information Documents of the VCC which are available free of charge by writing to: Client Services, First Sentier Investors , 1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland or by telephoning +353 1 635 6798 between 9am and 5pm (Dublin time) Monday to Friday or by visiting www.firstsentierinvestors.com. Telephone calls may be recorded. The distribution or purchase of shares in the funds, or entering into an investment agreement with First Sentier Investors may be restricted in certain jurisdictions.
Representative and Paying Agent in Switzerland: The representative and paying agent in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. Place where the relevant documentation may be obtained: The prospectus, key investor information documents (KIIDs), the instrument of incorporation as well as the annual and semi-annual reports may be obtained free of charge from the representative in Switzerland.
First Sentier Investors entities referred to in this document are part of First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.
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