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 August 2024
Global Listed Infrastructure gained in August, supported by robust fundamentals and anticipated interest rate cuts. The FTSE Global Core Infrastructure 50/50 index returned +3.9% while the MSCI World index^ ended the month +2.6% higher.
The best performing infrastructure sector was Energy Midstream (+6%), following a pleasing set of June quarter earnings. Rising US demand for energy and a keen appetite for US Liquefied Natural Gas exports from customers in Europe and Asia appear set to continue to support favourable operating conditions for the sector.
Utilities / Renewables (+4%) were supported by mounting expectations that the US Federal Reserve may cut interest rates in September; growing awareness that demand for electricity is likely to rise over coming years; and concerns for slowing economic growth resulting in increased appetite for these defensive assets.
The worst performing infrastructure sector was Railroads (flat) as union disputes weighed on Canadian freight rail operators Canadian National (-1%, not held) and Canadian Pacific (-4%, not held). Japanese passenger rail stocks were affected by volatility in the broader Japanese market at the start of the month.
The best performing infrastructure region was Latin America (+4%), whose airports and toll roads gained on positive regulatory developments and hopes of lower interest rates respectively. The worst performing infrastructure region was the UK (flat), which paused for breath following healthy gains in recent months for several of its utility stocks.
^ MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax. Data to 31 August 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 +3.2% after fees in August, 71bps behind the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).
The best performing stock in the portfolio was Mexican airport company GAP (+17%), which operates twelve airports across Mexico’s Pacific region, as well as Montego Bay and Kingston airports in Jamaica. The stock gained as the market welcomed the announcement of favourable regulatory terms for the period from 2025 to 2029, including a substantial increase in the maximum tariff that it is allowed to charge airlines as a return on further capital investment in its airports.
North American waste management company GFL Environmental (+12%) saw its share price increase after its management team announced plans to run an auction process with a view to selling its liquid waste-focused Environmental Services business segment. Any proceeds from the sale could be used to strengthen the company’s balance sheet, and to make bolt-on acquisitions to expand its core solid waste business. Better-than-expected June quarter earnings numbers, and appealing valuation multiples relative to other North American waste management operators, offered additional support to its share price.
Texas-based energy midstream company Targa Resources (+9%) gained after announcing strong June quarter earnings, underpinned by record processing, transportation and fractionation volumes. Reflecting this favourable operating environment, the company raised its 2024 earnings guidance and announced a new $1 billion share buyback program (equivalent to around 3% of shares on issue). Natural gas-focused peer DT Midstream (+4%), which operates energy midstream assets in Louisiana’s Haynesville basin and in the US Northeast, also gained against a backdrop of positive industry dynamics.
US utility stocks also continued their strong run. Better-than-expected earnings results for large-cap names Dominion Energy (+6%) and Duke Energy (+5%) were characterised by robust load growth (increase in power demand over time). Xcel Energy (+5%) flagged rising demand for electricity from data centers within its service territories, particularly Minnesota and Colorado. NextEra Energy (+6%) and Alliant Energy (+5%) also appeared to be beneficiaries of investor enthusiasm for the substantial, long-term growth potential facing electric utilities across the developed world.
The worst-performing stock in the portfolio was Beijing Airport (-10%) which announced disappointing passenger volumes for the June quarter, owing in part to the slow pace of flight services being restored on US — China routes. Chinese gas utility ENN Energy (-7%) also lagged after June quarter earnings results included softer-than-expected gas demand from industrial customers; and a lower number of new gas connections in its residential segment compared to the same period a year earlier.
Japan Airport Terminal (-9%), which owns and operates the terminal buildings at Tokyo’s Haneda airport; and passenger rail company West Japan Railway (-6%) also underperformed as a sharp fall in Japan’s broader stock market at the start of the month overshadowed positive earnings updates from both stocks. Japan Airport Terminal announced better-than-expected June quarter earnings, with the weaker yen driving strong retail / duty free spending by overseas tourists. June quarter earnings for West Japan Railway were ahead of market consensus; the company also reiterated a favourable demand outlook for the country’s summer holiday period.
Fund activity
A position in large-cap US regulated utility Southern Company was sold during the month after steady share price gains reduced mispricing. The proceeds were used to increase exposure to other defensive US utility names.
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. Within this space, we prefer US-listed operators servicing low-cost basins; or that are positioned to benefit from growth in US exports. An elevated oil price, robust US LNG export levels and a disciplined approach to capital expenditure are enabling these companies to generate strong free cash flows.
Source : Company data, First Sentier Investors, as of 31 August 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.
Global Listed Infrastructure
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Investing in global listed infrastructure can offer inflation-protected income and steady capital growth from real assets delivering essential services. We search for best-in-class assets worldwide with high barriers to entry, structural growth and pricing power.
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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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