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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

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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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Global Listed Infrastructure Monthly review and outlook

Global Listed Infrastructure Monthly review and outlook

A monthly review and outlook of the Global Listed Infrastructure sector.

Market review - as at November 2021

Global Listed Infrastructure gave up ground in November as news of a potentially more infectious coronavirus variant, and indications that the US Federal Reserve may start to reduce monetary stimulus measures sooner than expected, weighed on financial markets. The FTSE Global Core Infrastructure 50/50 index returned -3.3%, while the MSCI World index^ ended the month -2.2% lower. 

The best performing infrastructure sector was Water / Waste (+1%) as investors sought defensive exposure. Toll Roads (+1%) also held up well, with Asia-Pacific operators tending to outperform European peers.

The worst performing infrastructure sector was Pipelines (-6%), on concerns that the Omicron coronavirus variant may hinder the global economic recovery and reduce demand for energy. Airports (-6%) underperformed as strong October passenger volumes were overshadowed by an uncertain outlook for global mobility, as a number of countries tightened travel restrictions.

The best performing infrastructure region was the UK (+7%), reflecting gains from its utility stocks. The worst performing infrastructure region was Canada (-5%) owing to underperformance from its pipelines.

 

^ MSCI World Net Total Return Index, USD

All stock and sector performance data expressed in local currency terms. Source: Bloomberg.

Market outlook and Strategy

The Portfolio 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 inflation-protected income and strong capital growth over the medium-term.

Toll roads represent the portfolio’s largest sector overweight, via 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. While new coronavirus variants have clouded the near term outlook, we remain confident that toll roads will lead a return to normal demand levels as economic activity levels continue to pick up.

The portfolio is also overweight Railroads, primarily via exposure to large cap North American freight rail operators. These firms are unique and valuable franchises. Their wholly-owned track networks are high quality infrastructure assets which can never be replicated. They typically operate under duopoly market conditions, with significant numbers of captive customers such as grain, chemical and auto producers giving them strong pricing power over long haul routes. Improving operating efficiency provides further scope to grow earnings.

The portfolio is underweight Electric / Multi-Utilities. While these companies represent a large segment of the global listed infrastructure universe, and are a good source of yield and defence, some are trading at levels where limited mispricing is evident. That said, a substantial portion of the portfolio still consists of high conviction utility holdings. The portfolio’s focus is on companies with the scope to derive steady, low risk earnings growth from rate base investment (replacing ageing distribution networks, upgrading substations, expanding transmission lines); and the replacement of older coal-fired power stations with wind farms and solar power.

The portfolio is also underweight the Airports sector. The emergence of the Omicron variant has underscored how vulnerable airlines remain to coronavirus-related disruption. The portfolio’s exposure is focused primarily on higher quality European operators such as Spain’s AENA whose passenger mix is tilted towards Leisure and VFR (visiting friends and relatives) travellers. These categories could see numbers rebound sharply as travel restrictions are lifted. 

 

 

Source : Company data, First Sentier Investors, as of 30 November 2021.

 

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 document 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. 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 document may not be edited and/or reproduced in whole or in part without the prior consent of FSI. 

This document 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. 

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time. 

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.

MUFG and its subsidiaries are not responsible for any statement or information contained in this document. Neither MUFG nor any of its subsidiaries 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.