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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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formerly Realindex Investments
Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.
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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 June 2024
Global Listed Infrastructure dipped in June, giving back some of May’s strong performance. The FTSE Global Core Infrastructure 50/50 index returned -2.7% while the MSCI World index^ ended the month +2.0% higher.
The best performing infrastructure sector was Other (+3%), owing to gains from high beta Emerging Markets container port operators. Energy Midstream (+3%) stocks were buoyed by favourable operating conditions and a positive demand outlook. The worst performing infrastructure sector was Utilities / Renewables (-4%) as concerns around future policy support weighed on US-based renewables-focused stocks.
The best performing infrastructure region was the United Kingdom (+2%), reflecting positive returns from its electric utility stocks. The worst performing infrastructure region was Japan (-6%), whose electric utilities lagged on a more cautious outlook for the potential timing of nuclear power plant re-starts.
^ MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax. Data to 30 June 2024. 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. These stocks have benefited from a shift towards cars and away from public transport since the COVID-19 pandemic. To date, inflation-linked toll increases have had little impact on demand. High operating leverage (i.e. largely fixed costs as sales increase) has proved supportive of earnings growth. Improvements made to toll road networks in recent years provide scope for further growth in traffic volumes.
A substantial portion of the portfolio consists of utilities / renewables. The shift from coal generation to wind, solar and storage, supported in the US by the Inflation Reduction Act; along with the need for increased resiliency spend, should drive meaningful capital expenditure growth for this sector. Increased capex should in turn drive higher rate base and earnings growth for regulated utilities. This theme is being amplified by growth in data centres / AI, industrial onshoring and electric vehicles, which are driving a steady increase in demand for electricity — the first time in decades that this has been seen in many developed markets.
The portfolio remains underweight energy midstream. A rising oil price, robust US export levels and a disciplined approach to capital expenditure are enabling the sector to generate strong free cash flow. However, following a sustained period of positive performance, mispricing in this sector has become less evident. We have maintained high conviction positions in companies operating in low-cost basins; or that are positioned to benefit from growth in US exports.
Source : Company data, First Sentier Investors, as of 30 June 2024.
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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.
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