Global Listed Infrastructure monthly review and outlook

The Global Listed Infrastructure asset class built on recent gains as US tariff concerns continued to recede. The FTSE Global Core Infrastructure 50/50 index returned +1.7% in May, while the MSCI World index^{^} ended the month +5.9% higher. 

The best performing infrastructure sector was Other (+13%), higher risk stocks that we screen from our Focus List. Emerging Markets port stocks rallied on relief that US tariff measures may be less stringent than originally feared, after the US and China agreed to a 90-day pause on reciprocal tariffs. Railroads (+7%) also gained, with North American freight rail stocks supported by a brightening outlook for haulage volumes. The worst performing infrastructure sector was Towers / Data Centres (-4%). Having delivered strong YTD gains, large-cap US tower stocks gave up ground as bond yields rose.

The best performing infrastructure region was Latin America (+6%), aided by robust returns from its airport stocks. The worst performing infrastructure region was Japan (-1%), whose electric utility stocks lagged as investors favoured higher beta assets.

^{^} MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax. Data to 31 May 2025. Source: First Sentier Investors / Lipper IM. All stock and sector performance data expressed in local currency terms. Source: Bloomberg.

The Fund returned +1.5% after fees in May, -20bps behind the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).  

The best performing stock in the portfolio was Mexico’s largest airport operator GAP (+14%), which runs 12 airports in Mexico’s Pacific region as well as two Jamaican airports. The company announced robust passenger growth of 9% for April 2025 compared to the same period a year ago, led by domestic travel. Passenger numbers were particularly strong at its leisure-focused airports such as Puerto Vallarta on Mexico’s central Pacific coast, and Los Cabos on the Baja California peninsula.

Swiss operator Flughafen Zurich (+10%) and French peer Groupe ADP (+8%) also gained. Both stocks were buoyed by commentary from airlines including Ryanair (+12%, not in our Focus List) anticipating robust passenger volumes for the 2025 European summer holiday season, owing in part to a dip in demand for transatlantic travel. During the month Flughafen Zurich announced it had acquired ownership of the Radisson Blu hotel building for CHF155 million, giving it full control of the airport’s central perimeter properties.

Japan Airport Terminal (+9%), which owns and operates the terminals at Tokyo’s Haneda Airport, announced healthy earnings numbers for its 2024 financial year, including 13% passenger growth for the March 2025 quarter. Investors also welcomed comments from the new management team indicating their intention to place a greater emphasis on shareholder returns in future. 

US east coast freight rail operators CSX Corp (+13%) and Norfolk Southern (+11%) rose as concerns for trade tension and lower haulage volumes eased. Speculation that further consolidation between North American Class I freight rail companies may be revived under the current administration provided an additional tailwind to these stocks. Both companies are seen as potential takeover targets under a merger scenario, with larger west coast peers Union Pacific (+3%, not held) and BNSF (part of Warren Buffett’s conglomerate Berkshire Hathway) viewed as the likelier acquirors. Canadian Pacific Kansas City (+12%), which was formed by the 2021 acquisition of US operator Kansas City Southern by Canadian Pacific, and whose 20,000-mile rail network now connects Canada, the US and Mexico, also gained. While the outlook remains uncertain, company management noted in a recent meeting that trade tariffs are no longer expected to lead to an “air pocket” period of sharply lower haulage volumes.

The worst performing stock in the portfolio was US energy midstream company Targa Resources (-8%), which lagged on an uncertain outlook for energy prices. While the company has limited direct commodity price exposure, it may be indirectly affected if lower energy prices result in lower production, potentially reducing demand for its contracted US energy midstream services over time. DT Midstream (+8%) and Cheniere Energy (+3%) held up better, supported by the view that demand for natural gas – both within the US and from key European and Asian export markets – would remain resilient.

Holdings in US-listed mobile towers Crown Castle (-5%), American Tower (-5%) and SBA Communications (-4%) fell during the month. Increasing risks that EchoStar could file for bankruptcy raised concerns for the buildout of a fourth 5G wireless network in the US. While tower lease payments would likely continue, customer consolidation could result in 2-4% churn for tower operators in the medium-term. Higher US bond yields (the yield on a 10-year US treasury increased from 4.2% to 4.4% over the course of the month), along with some profit-taking may also have impacted the sector.

US utilities delivered mixed returns. American Electric Power (-4%) and Duke Energy (-3%) both announced better-than-expected March quarter earnings but declined as investors were drawn towards higher growth assets. Rising demand for electricity is expected to represent a long-term tailwind to earnings for both stocks. Connecticut-based Eversource Energy (+10%) fared better following news that the Trump administration’s “stop-work” order on the Empire Wind project, off the coast of New York state, had been lifted. The decision has positive implications for other US east coast offshore wind developments. Pennsylvania gas utility and energy midstream company UGI Corp (+10%) continued its strong run after announcing better-than-expected March quarter earnings, including signs of improvement at its underperforming AmeriGas propane distribution business. 

Large-cap regulated US utility Sempra was added to the portfolio. The company has three divisions – a Californian electric and gas transmission and distribution utility servicing customers in San Diego; a Texas electric transmission and distribution utility operating in Dallas Fort Worth; and Sempra Infrastructure, with energy infrastructure assets in Texas, Louisiana and Mexico. The company is trading at modest valuation multiples, having announced disappointing 2024 earnings results. We believe the stock has scope to recover ground, aided by potential catalysts including the planned sale of a stake in Sempra Infrastructure segment, and improved regulation and additional investment into its fast-growing Texas utility business.

There were three divestments from the portfolio this month. A position in Canadian-listed utility / energy midstream stock AltaGas was sold. Its share price has risen steadily under well-regarded CEO Vern Yu, who has introduced a range of measures to simplify and de-risk the business since being appointed in mid-2023. We believe the company’s improved prospects are now reflected in its current valuation multiples. North American waste management company GFL Environmental was divested after a period of strong share price gains reduced mispricing and moved the stock to a lower position in our investment process. US regulated utility Exelon was also sold following a period of pleasing gains during the first four months of 2025, as an uncertain economic and political backdrop drove demand for defensive assets.

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.

Financial markets have quickly shrugged off the tariff concerns sparked by Trump’s “Liberation Day” announcement in early April. However, rising trade costs are still expected to reduce global economic growth rates and push inflation higher. Listed infrastructure would likely hold up well in the face of these potential headwinds, owing to its essential service provision, regulated / contracted cash flows and relatively modest valuation multiples.

The asset class also remains supported by several structural growth drivers. Electric utilities, particularly in the US, face higher capital expenditure needs to meet the increases in electricity demand being driven by AI, data centres, onshoring of manufacturing and electrification. While additional equity will be needed to fund some of this capex, this theme should also enable the sector’s Earnings per Share growth to accelerate from a typical range of between 3% and 5% per annum to between 5% and 8% per annum, representing a meaningful positive shift.

This rising demand is also likely to bolster the need for natural gas, which has a crucial role to play in maintaining energy reliability and affordability. As well as benefitting utilities, this is also likely to drive additional demand for North American energy transportation, storage and export assets, presenting energy midstream companies with new opportunities to invest and grow.

Digitalisation is another key theme for the asset class. We expect structural growth in demand for mobile data (underpinned by an ever-growing reliance on digital connectivity) to support long-term earnings growth for Towers. The adoption of 5G technology over coming years will require networks to handle increased data speed and lower latency as well as a much higher number of connected devices. The surge of interest in AI is driving data center demand, as well as boosting the need for electricity.

Source : Company data, First Sentier Investors, as of 31 May 2025.

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.