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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.

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 December 2024

Global Listed Infrastructure gave up ground in December following strong ytd gains. The FTSE Global Core Infrastructure 50/50 index returned -5.8%, while the MSCI World index^ ended the month -2.6% lower.

The best performing infrastructure sector was Toll Roads (+4%). European and Asia-Pacific operators held up well on robust traffic volumes, modest valuation multiples and the prospect of easing political headwinds. The worst performing infrastructure sector was Towers / Data Centres (-10%), which fell as the US 10-year treasury yield approached its highest levels of the year.

The best performing infrastructure region was Australia / New Zealand (+6%), reflecting strong returns from local toll road and airport stocks. The worst performing infrastructure region was the United States (-7%), as the country’s mobile towers, railroads and utilities underperformed.

^MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax.Data to 31 December 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 -6.6% after fees in December, 72bps behind the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).  

The best performing stock in the portfolio was Transurban (+7%), which operates market-leading toll road networks in Australia’s largest cities. Notable assets include CityLink in Melbourne and WestConnex in Sydney. Having underperformed earlier in 2024 against a backdrop of rising bond yields and political uncertainty, the stock rose on reports that discussions with the New South Wales state government on toll reform were progressing well. 

French-listed toll road operator Vinci (flat) and Australian-listed Atlas Arteria (-1%), whose main asset is a stake in French motorway network APRR, both held up during the month. Healthy traffic volumes and appealing valuation multiples outweighed concerns about the country’s ongoing political instability. However, Brazil’s largest toll road operator CCR (-8%) lagged owing to persistent concerns around the Brazilian government’s spending plans and budget deficit. Mexican peer PINFRA (-9%), which operates 27 roads located predominantly in Mexico City and surrounding regions also fell, despite an absence of material stock-specific news.

Chinese gas utility ENN Energy (+6%) and Beijing Airport (+4%), owner and operator of Beijing’s most significant airport via a concession that runs to 2056, both recovered ground after falling in November on concerns that geo-political tensions between China and the US may increase. Swiss airport operator Flughafen Zurich (+4%) climbed on a positive outlook for European airport passenger volumes in 2025. During the month, India’s Noida International Airport, which Flughafen Zurich is developing, carried out its first validation flight, marking a key stage towards opening in the first half of 2025. 

The worst-performing stock in the portfolio was US east coast freight rail operator Norfolk Southern (-15%) which gave up its post-election gains on growing concerns that US freight haulage volumes could be negatively affected by tariff policies implemented by the incoming Trump administration. East coast peer CSX Corp (-12%) and West Coast operator Union Pacific (-6%) were affected by similar concerns. Comments from CSX management flagging that December quarter earnings were likely to be affected by adverse weather conditions - including October’s Hurricane Milton - also weighed on sentiment towards these stocks. 

US energy midstream stocks including Targa Resources (-13%), ONEOK (-12%) and DT Midstream (-6%) delivered very strong share price gains over the first 11 months of 2024 — driven by rising oil and natural gas production volumes, a healthy demand outlook and expectations that regulatory restrictions would be eased - but fell in December on profit-taking.

Mobile tower stocks also ended the month lower. Rising bond yields weighed on US operator American Tower (-11%) and peer SBA Communications (-10%). Italian operator Inwit (+1%) fared better, supported by the view that it was likely to be an acquisition target in the event of further consolidation within the European mobile tower market. 

Fund activity

The Fund initiated a position in PG&E, a San Francisco-based electric and natural gas utility serving the northern half of California. The company’s assets include substantial transmission and distribution networks, as well as 7.6 gigawatts of regulated generation capacity. The stock is currently trading on undemanding multiples relative to peers, owing to lingering concerns about vulnerability to wildfires in its service territory. We believe the company has the potential to trade closer to peer averages as these concerns subside; and as the company’s planned capital expenditure on network improvements underpins healthy rate base and earnings growth.

Wisconsin-based regulated electric utility Alliant Energy was divested after strong share price gains earlier in 2024 reduced mispricing and moved the stock to a lower ranking within our investment process. Mexican airport operator ASUR was sold on the view that market assumptions around future passenger volume growth at Cancun Airport, its main asset, have become overly optimistic. Chinese-listed water utility Guangdong Investment, whose assets includes the main concession to supply water to Hong Kong, was also sold after the announcement of plans to spin-off its property development business pushed its share price sharply higher.

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. Although the earnings growth rate of these companies may reduce as inflation eases, free cash flow generation should remain robust. This will reinforce balance sheet strength and increase share buyback opportunities. The perception of lower political and regulatory risks in Australia, France and Latin America should also provide a tailwind to these stocks.

We are positively disposed towards both freight and passenger rail stocks. North American freight railroads have endured an unprecedented three-year freight recession, which the sector appears well positioned to emerge from in 2025. Improved haulage volumes, along with better service metrics, lower capital employed and the sector’s strong pricing power, bode well for shareholders. Passenger rail stocks look mispriced, with potential upside from growth in travel spend over the medium term. 

A substantial portion of the portfolio consists of utilities / renewables. These stocks face higher capital expenditure needs to meet the increases in electricity demand being driven by AI, data centres, manufacturing onshoring and electrification, particularly in the US. They are likely to need to raise substantial amounts of equity in 2025, to meet these needs. However, this theme should also enable the sector’s Earnings per Share growth rate to accelerate from a typical range of between 3% and 5% per annum to between 6% and 8% per annum, representing a meaningful positive shift.

The portfolio remains underweight energy midstream. Within this space, the portfolio has overweight exposure to US energy midstream stocks but is substantially underweight ex-US energy midstream companies – notable large-cap, slower growing operators such as Enbridge Inc. and TC Energy. 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 December 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.

 

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.

This material 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, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names 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 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.

To the extent permitted by law, MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material 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.