This is a financial promotion for The First Sentier Global Listed Infrastructure Fund. This information is for professional clients only in the EEA and elsewhere where lawful. Investing involves certain risks including:
- The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
- Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares.
- Single sector risk: investing in a single economic sector may be riskier than investing in a number of different sectors. Investing in a larger number of sectors helps to spread risk.
- Listed infrastructure risk: the infrastructure sector and the value of the Fund is particularly affected by factors such as natural disasters, operational disruption and national and local environmental laws.
- Concentration risk: the Fund invests in a relatively small number of companies which may be riskier than a fund that invests in a large number of companies.
- Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
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For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.
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Global Listed Infrastructure gave up ground in January as a cautious mood prevailed in financial markets, despite the start of global vaccination campaigns. The FTSE Global Core Infrastructure 50/50 index fell -1.9%, while the MSCI World index^ ended the month –1.0% lower.
The best performing infrastructure sector was Pipelines (+6%), as robust North American hydrocarbon export volumes and improving commodity prices buoyed investor sentiment. Water / Waste (+1%) also ended the month in positive territory, on the enduring appeal of their defensive characteristics. The worst performing infrastructure sectors were Airports (-7%) and Toll Roads (-5%) as ongoing coronavirus lockdown measures weighed on passenger / traffic volumes, particularly in Europe and Latin America.
The best performing infrastructure region was Japan (+4%). The country’s electric utilities rallied due to a surge in wholesale electricity prices, and on speculation that Tokyo Electric Power (+47%, not in our focus list) may be allowed to restart one of its nuclear plants, which have been closed since the Fukushima nuclear disaster in 2011. Gains for Canada (+3%) reflected positive returns from its large-cap pipeline companies. The worst performing infrastructure regions were Europe ex-UK (-6%) and Latin America (-4%), owing to airport and toll road underperformance.
The Fund returned -1.1% after fees1 in January, 82 bps ahead of the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).
Annual Performance (% in USD) to 31 January 2021
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 share class currency, the return may increase or decrease as a result of currency fluctuations.
Performance figures have been 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. Source: Lipper IM / First Sentier Investors (UK) Funds Limited.
*The benchmark changed from the UBS Global Infrastructure & Utilities 50-50 Index on 01/04/2015.
1 Performance is based on VCC ID share class, net of fees, expressed in USD.
^ MSCI World Net Total Return Index, USD.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
The best performing stock in the portfolio was pipeline operator Pembina Pipeline (+12%), whose strategically located energy infrastructure assets provide a range of transportation, fractionation and storage services to Western Canada’s oil and gas companies. Investors welcomed news that the company would conserve capital by cancelling a large project, and were drawn to the company’s long-term, contracted cash flows and 7.5% distribution yield.
Other energy infrastructure holdings - Enterprise Products Partners (+6%), Cheniere Energy (+5%) and Magellan Midstream Partners (+5%) - also started the year on a positive note. Cheniere has maintained consistent earnings guidance since early 2020, illustrating the integrity of its long term Liquefied Natural Gas (LNG) supply contracts and the stability of cash flows in this space. Enterprise, which was able to hold its quarterly distribution payments level throughout 2020 before increasing the amount in January 2021, continued to benefit from strong Natural Gas Liquid (NGL) export momentum. Magellan climbed on the view that a brightening outlook for the US economy would support volumes for its extensive refined products pipeline networks.
China toll road operator Jiangsu Expressway (+4%) reported positive truck traffic momentum on the main motorway between Shanghai and Nanjing (its largest asset) as the Chinese economy continued to recover. Hong Kong electric utility CLP Holdings (+1%) held up well as steady growth for its core Hong Kong business, and the growth potential of renewables in China and India, outweighed a challenging operating environment for its Australian power stations. However water utility Guangdong Investment (-2%) and gas utility China Gas (-11%) both lagged after strong increases in previous months.
December quarter earnings results from Japanese passenger rail operator West Japan Railway (+3%) were largely in line with market expectations. The company reported reasonable progress in reducing costs (a -10% reduction for the final nine months of 2020), but Japan’s ongoing coronavirus-related state of emergency continued to limit passenger volumes. Cost cutting measures from larger peer East Japan Railway (flat) were not quite as effective (a -6% reduction for the same period).
The worst performing stock in the portfolio was toll road operator PINFRA (-12%), which lagged after new coronavirus restrictions were introduced in December for Mexico City (where most of the company’s roads are located) following a surge in case numbers there. European peers Atlantia (-11%), Vinci (-6%) and Eiffage (-5%) also fell as lockdown measures remained in place across Italy and France. Data from peers indicates that traffic levels on French roads in the December quarter were approximately 25% below the levels seen during the same period a year earlier. However, volumes tended towards pre-COVID-19 levels relatively quickly once lockdowns were lifted in 2020.
European airports AENA (-10%) and Flughafen Zurich (-6%) gave up some of their recent gains. The prospect of a summer traffic recovery for these stocks if vaccinations are rolled out successfully was overshadowed by expectations of muted passenger numbers during the March quarter.
Utilities delivered mixed returns as the prospect of extensive US stimulus measures, following the Democrats’ Senate win in Georgia, led to a focus on higher bond yields and inflation expectations. This represented a headwind for small and midcap US operators such as Avista (-7%) and Pinnacle West (-5%). Larger cap peers with strong renewables credentials such as NextEra Energy (+5%) and Eversource Energy (+1%), along with UK peer SSE (+1%), fared better.
No stocks were added to the Fund during January, and portfolio holdings were generally maintained at existing levels.
Market outlook and Fund positioning
The Fund invests in a range of global listed infrastructure assets including toll roads, airports, ports, railroads, utilities, pipelines, and wireless towers. These sectors share common characteristics, like barriers to entry and pricing power, which can provide investors with the potential for inflation-protected income and strong capital growth over the medium-term.
Toll roads represent the portfolio’s largest sector overweight. We believe these companies represent exceptional value at current levels. Traffic volumes have proved more resilient than those of other transport infrastructure assets; and toll roads are likely to be the first to see a return to normal demand levels as vaccine programs are rolled out. The portfolio is also overweight Towers / Data Centres. Exceptionally strong growth in 2020 from cloud computing leaders Amazon Web Services and Microsoft Azure provided the latest reminder that data mobility / connectivity needs are set to increase further in coming years, to the benefit of the towers and data centres.
A roughly neutral but large absolute exposure to Multi / Electric utilities has been maintained. The resilience and predictability of regulated utility earnings – along with the growth potential associated with the transition to renewables – does not appear to be fully appreciated by listed markets.
The portfolio is underweight the Airports sector. It remains to be seen how quickly consumer behaviour will return to normal. Business travel may never regain previous levels. The decision by Singapore and Hong Kong to delay the launch of an air “travel bubble”, originally scheduled for mid-November but now pushed back to 2021, serves as a reminder of the logistical challenges still facing the sector. The portfolio’s exposure is focused primarily on higher quality European operators. An underweight exposure to the Pipelines sector has also been maintained. While the sector has delivered robust gains in recent months, we remain conscious of the structural headwinds that these companies could face as Net Zero initiatives gather pace.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
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