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 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.
Fund performance
The Fund returned -1.3% after fees in June, 134bps ahead of the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).
The best performing stock in the portfolio was North American waste management company GFL Environmental (+24%). The company, which provides a comprehensive range of waste management and soil remediation services, employs over 19,500 people and operates in every Canadian province and across 24 US states. Its share price rose sharply following reports that it was evaluating potential takeover offers. This would be consistent with a recent pattern of consolidation within the North American waste management sector which includes Republic Services buying US Ecology in 2022, EQT Infrastructure acquiring Heritage Environmental Services in 2023, and Waste Management’s recently announced takeover of Stericycle.
US Liquefied Natural Gas exporter Cheniere Energy (+11%) climbed after announcing a US$4 billion increase to its share buyback program (equivalent to 11% of shares on issue) and a larger-than-expected 15% dividend increase. These moves follow the announcement in May of healthy March quarter earnings, and underscore Cheniere’s confidence in international demand for US LNG exports. A growing view amongst investors that higher energy demand within the US would drive appetite for natural gas proved supportive of several energy midstream stocks including DT Midstream (+9%). Natural Gas Liquids-focused Targa Resources (+7%) also rose, aided by robust hydrocarbon production levels in Texas’ Permian Basin where a substantial portion of its operations are located.
UK utilities were another area of strength for the portfolio. National Grid (5%) increased on the appeal of its relatively high rate-base growth and the central role it is set to play in the UK’s energy transition process. SSE (+2%), whose assets include regulated transmission and distribution networks as well as a substantial renewables division focused on offshore wind, gained on investor enthusiasm for the earnings growth potential associated with these assets.
The worst-performing stock in the portfolio was US utility AES Corp (-19%). The company is evolving from a geographically diversified independent power producer to a USfocused renewable energy company. Its share price was affected by worries that a win for Donald Trump in November’s US Presidential Election could erode current policy support for renewables. Other renewables-focused US utility holdings including NextEra Energy (-11%) and Dominion Energy (-9%) appeared to be affected by similar concerns.
Political risk also overshadowed other segments of the portfolio. French-listed infrastructure stocks including toll road and airport company Vinci (-14%) and Channel Tunnel operator Getlink (-5%) fell in the face of strong polling for the populist right-wing National Rally (RN) party, ahead of the country’s parliamentary elections. Previous RN policies have included the renationalisation of French toll roads. Australian-listed Atlas Arteria (-4%), whose largest asset is a 31% stake in APRR, a 2,400-kilometre motorway network in the east of France, also underperformed.
In Mexico’s recent presidential election, a larger-than-expected margin of victory for the left-wing Morena party affected airport operators GAP (-10%) and ASUR (-2%); and toll road operator PINFRA (-9%). These stocks lagged on nervousness that Mexican infrastructure concessions may now be more vulnerable to potential legal or regulatory changes.
Fund activity
A position in US regulated electric utility Entergy was divested. The stock has re-rated during our holding period and we are wary the upcoming Caribbean hurricane season may harm its US Gulf Coast-focused service territory. While regulators typically allow US utilities to pass these costs through to customers over time, there may be a lag between the costs being incurred and the time over which they can be recouped.
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. 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.
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.
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.
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