Specialist in Asia Pacific, 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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Please read the following important information for First Sentier Global Listed Infrastructure Fund
• The Fund invests primarily in global listed infrastructure and infrastructure-related equity securities or equity related securities worldwide. Investments in infrastructure projects may involve risks including projects not being completed on time and within budget, changes in environment laws and regulations.
• The Fund’s investments may be concentrated in a single and limited/specialist sector or in fast growing economies which may have higher volatility or greater loss of capital than more diversified portfolios. The Fund may also expose to RMB currency and conversion risk.
• Small/ mid-capitalisation securities may have lower liquidity and their prices are more volatile to adverse economic developments.
• The Fund may use FDIs for hedging and efficient portfolio management purposes, which may subject the Fund to additional liquidity, valuation, counterparty and over the counter transaction risks
• For certain share classes, the Fund may at its discretion pay dividend out of capital or pay fees and expenses out of capital to increase distributable income and effectively a distribution out of capital. This amounts to a return or withdrawal of your original investment or from any capital gains attributable to that, and may result in an immediate decrease of NAV per share.
• It is possible that a part or entire value of your investment could be lost. You should not base your investment decision solely on this document. Please read the offering document including risk factors for details.
A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at April 2024
Global Listed Infrastructure held up relatively well in April as robust earnings results enabled the asset class to shrug off renewed concerns for rising interest rates. The FTSE Global Core Infrastructure 50/50 index returned -1.3% while the MSCI World index^ ended the month -3.7% lower.
The best performing infrastructure sector was Airports (+2%), as positive March quarter earnings propelled Mexican airport operators sharply higher. Utilities / Renewables (+2%) gained on the back of strong earnings; and on an increasingly favourable outlook for power demand. The worst performing infrastructure sector was Towers / DCs (-11%) as persistently high inflation rekindled interest rate concerns. Tower companies typically have fixed escalators built into their contracts with clients, but less ability to pass through higher interest costs.
The best performing infrastructure region was Latin America (+4%), owing to strong gains for Mexico’s airports. The worst performing infrastructure region was Australia / NZ (-5%), which was held back by lacklustre returns from the region’s transport infrastructure stocks.
^ MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax. Data to 30 April 2024. Source: First Sentier Investors / Lipper IM. All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
Fund performance
The Fund returned +0.4% after fees in April, 177bps ahead of the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).
The best performing stock in the portfolio was Guangdong Investment (+22%), as investors identified value. Guangdong is a Chinese water utility with property rental and development businesses, along with small investments in toll roads and electricity generation. The stock rose after reporting satisfactory March quarter earnings results, with steady earnings growth for its core water business and reasonable performance from its property segments. Chinese gas utility ENN Energy (+12%) and Beijing Airport (+5%) performed well during the month, on the back of modest valuation multiples. Indications of improving manufacturing activity levels also buoyed investor sentiment towards China.
Mexican airport operators GAP (+17%) and ASUR (+12%) rose strongly after announcing better-than-expected March quarter earnings. Passenger volumes for both companies were broadly flat, with strong international passenger growth offset by softness in domestic passenger numbers. However investors welcomed strong growth in commercial revenues (i.e. duty free and car parking) for GAP; while ASUR’s results were supported by an increase in the amounts it is allowed to charge for passenger fees and a range of other tariffs.
US-listed electric utility and renewables leader NextEra Energy (+5%) announced above-consensus March quarter earnings, driven by healthy rate base growth for its regulated Florida utility business; and provided positive commentary around its renewables development pipeline. Virginia-based regulated utility Dominion Energy (+4%) continued its strong recent run. The high number of existing data centres in its service territory, along with others in the planning or construction stages, are expected to add to add to load growth in coming years. Potential projects for the company include a proposed 2.6 gigawatt wind farm off the Virginia coast which, once built, will be the largest US offshore wind farm. These firms are amongst a number of utility stocks held by the portfolio that appear well-positioned to benefit from increase in power demand across the US.
The worst performing stocks in the portfolio were US-listed tower companies American Tower (-12%) and Crown Castle (-11%), as interest rate expectations remained a key driver of share price performance for this bond yield sensitive sector. At the very end of the month, American Tower announced healthy March quarter earnings, with steady performance from its US towers business and pleasing contributions from its data centre and international towers segments. The company also upgraded its 2024 earnings guidance.
Toll roads were another area of weakness during the month. In the absence of material stock-specific news, rising bond yields appear to have been the biggest headwind for Brazilian toll road operator CCR (-9%) and Australian peer Transurban (-6%). French-listed infrastructure construction and concessions business Vinci (-4%), whose assets include substantial toll road and airport businesses, gave up ground as investors digested news of its ~£1.3 billion acquisition of a majority stake in Edinburgh Airport from unlisted infrastructure manager GIP. While the price paid looks full on current multiples, Vinci has a good track record of realising value from its airport assets over time, for example by increasing tariffs and improving retail offerings.
US east coast freight rail operator Norfolk Southern (-10%) lagged as investor hopes for activist-driven changes faded over the course of the month. This month’s share price fall appears to reflect the view that the company may have conceded to enough of activist investor Ancora Capital’s demands to enable the existing management team to stay in place; rather than appointing a new management team mandated to carry out a more ambitious program of improvements.
Fund activity
No new stocks were added to the portfolio during the month, and positions in existing holdings were generally maintained at current weights.
Market outlook and fund positioning
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.
Toll roads remain the portfolio’s largest sector overweight, via positions in seven companies with operations in ten countries. Toll roads 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. Strong 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. Electricity demand has remained roughly flat in many developed markets for many years. However, growth in data centres, industrial on-shoring and electric vehicles is expected to lead to a steady increase in demand in the years ahead. The shift from coal generation to wind, solar and storage, supported in the US by the Inflation Reduction Act, and the need for increased resiliency spend, should also support meaningful capital expenditure growth. Increased capex should in turn drive higher rate base and earnings growth for regulated utilities.
The portfolio remains underweight energy midstream. A supportive oil price, robust LNG 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 strong 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 LNG exports.
Source : Company data, First Sentier Investors, as of 30 April 2024.
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.
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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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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 FSI’s portfolios at a certain point in time, and the holdings may change over time.
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