Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
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Our philosophy is very simple. We are constantly searching for high quality businesses and when we acquire them, we will work relentlessly with them to create long-term sustainable value through innovation, ESG-led and proactive asset management.
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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.
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A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at February 2023
Global Listed Infrastructure gave up ground in February, as renewed concerns for high inflation weighed again on financial markets. The FTSE Global Core Infrastructure 50/50 index fell -4.8% while the MSCI World index^ ended the month -2.4% lower.
The best performing infrastructure sectors were Airports (+2%) and Toll Roads (+1%), reflecting positive trends in passenger / traffic volumes and healthy December quarter earnings numbers. The worst performing infrastructure sector was Towers / DCs (-10%) as rising rate concerns weighed on these bond yield-sensitive stocks. Strong US employment data suggested that further interest rate hikes would be needed to contain persistently high inflation.
The best performing infrastructure region was Australia / NZ (+2%), led higher by transport infrastructure. The worst performing infrastructure region was the US (-6%), where Towers and Utilities lagged.
^ MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax. Data to 28 February 2023. Source: First Sentier Investors / Lipper IM. All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
Market outlook and Strategy
The Portfolio 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.
Toll roads remain the portfolio’s largest sector overweight, on the view that robust traffic volumes and inflation-linked toll increases will lead to healthy earnings growth. We are alert to potential headwinds, such as an economic slowdown leading to a dip in truck traffic on longer distance roads; or lacklustre commuter traffic levels on some intra-city roads as the return-to-office trend settles. Overall however we expect toll roads to be strong performers as toll increases support earnings growth, and demand proves more resilient than expected by the market.
The portfolio is slightly overweight towers / data centres. Consumers and businesses alike continue to move activities onto digital platforms, underpinning growing demand for communication infrastructure assets. The ongoing rollout of 5G mobile technology is expected to provide an additional tailwind to tower leasing demand. While the revenue outlook remains robust, we are conscious that rising interest rates may be more of a headwind to EPS growth than in previous years.
A substantial part of the portfolio consists of utilities / renewables stocks. Decarbonisation, electrification and resiliency spend represent large and growing investment opportunities for these companies. These investments drive utilities’ rate base growth, leading in turn to earnings growth. However, in the near term this growth is likely to be tempered by rising interest costs. Despite these headwinds, we believe utilities have the potential to deliver reasonable earnings growth, underpinned by plentiful capital investment opportunities and aided by limited sensitivity to a weaker economic backdrop.
An underweight position has been maintained in the energy midstream sector, with exposure consisting of high conviction positions in companies with exposure to low cost basins; or that are positioned to benefit from growth in US LNG exports. We remain conscious of the structural headwinds that Net Zero initiatives may pose to this sector in the longer term.
Source : Company data, First Sentier Investors, as of 28 February 2023.
Important information
Investment involves risks, past performance is not a guide to future performance. Refer to the offering documents of the respective funds for details, including risk factors. The information contained within this material has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. It does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment. The information in this material may not be edited and/or reproduced in whole or in part without the prior consent of FSI.
This material is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission in Hong Kong. First Sentier Investors is a business name of First Sentier Investors (Hong Kong) Limited.
First Sentier Investors (Hong Kong) Limited is part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.
To the extent permitted by law, MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material 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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