A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at April 2021
Global Listed Infrastructure rose in April, supported by generally resilient quarterly earnings numbers and rapid progress in the US vaccination rollout. The best performing infrastructure sector was Towers / Data Centres (+7%), which gained on easing bond yields, positive earnings results and the anticipation of higher growth rates as telecom operators ready themselves to deploy 5G equipment onto tower sites at scale.
The worst performing infrastructure sector was Airports (-1%), owing to ongoing uncertainty about the timeframe for a return to normal travel and economic activity levels. Recent progress on this front includes the opening of a “travel bubble” between Australia and New Zealand; and hopes that the EU may introduce a digital Vaccine Passport in time for the European summer holidays.
Railroads (flat) also underperformed, with passenger rail stocks affected by similar concerns. Sentiment was more bullish in the freight rail space; Canadian National (-9%, not owned) made a US$34 billion counter-bid for Kansas City Southern (+11%, not owned), a 21% premium to the current bid from rival Canadian Pacific (-4%, not owned).
The best performing infrastructure region was the UK (+5%), owing to robust performance from its utility stocks against a backdrop of easing lockdown restrictions. The worst performing infrastructure region was Japan (-7%). The country’s electric utilities fell on concerns for lower electricity sales as new entrants gain market share.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
Market outlook and strategy
The Portfolio invests in a range of global listed infrastructure assets including toll roads, airports, railroads, utilities, pipelines, and wireless towers. 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.
The outlook for the asset class is positive. Government attempts to bolster economic fundamentals through infrastructure and green energy stimulus plans — including Biden’s infrastructure plan — are likely to benefit many global listed infrastructure firms. In particular, the ongoing repair and replacement of old energy transmission and distribution grids, along with the accelerating build-out of renewables, should represent a steady source of utility earnings growth over many years. The resilience, predictability and growth potential of these earnings — showcased over the past year — do not appear to be fully reflected in current valuation multiples.
There is also scope for a material recovery in traffic / passenger volumes across coronavirus-impacted infrastructure sectors such as toll roads, airports and passenger rail, as vaccine programs ramp up globally. Reflecting this, 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.
Rising interest rate risk now appears to have been priced into Towers’ valuations. Ever-increasing demand for mobile data / connectivity needs continues to underpin steady earnings growth for these companies, insulating them from the ebbs and flows of the broader global economy.
More broadly, we also note that financial market pessimism towards global listed infrastructure and optimism towards higher risk assets over the past 12 months has driven an increase in intrinsic value across the asset class. This bodes well for future global listed infrastructure performance.
Source : Company data, First Sentier Investors, as of end of April 2021.
This document is prepared by First Sentier Investors (Singapore) (“FSI”) (Co. Reg No. 196900420D.) whose views and opinions expressed or implied in the document are subject to change without notice. FSI accepts no liability whatsoever for any loss, whether direct or indirect, arising from any use of or reliance on this document. This document is published for general information and general circulation only and does not have any regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive this document. Investors may wish to seek advice from a financial adviser and should read the Prospectus, available from First Sentier Investors (Singapore) or any of our Distributors before deciding to subscribe for the Fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider carefully whether the Fund in question is suitable for him. Past performance of the Fund or the Manager, and any economic and market trends or forecast, are not indicative of the future or likely performance of the Fund or the Manager. The value of units in the Fund, and any income accruing to the units from the Fund, may fall as well as rise. Investors should note that their investment is exposed to fluctuations in exchange rates if the base currency of the Fund and/or underlying investment is different from the currency of your investment. Units are not available to US persons.
Applications for units of the Fund must be made on the application forms accompanying the prospectus. Investments in unit trusts are not obligations of, deposits in, or guaranteed or insured by First Sentier Investors (Singapore), and are subject to risks, including the possible loss of the principal amount invested.
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.
In the event of discrepancies between the marketing materials and the Prospectus, the Prospectus shall prevail.
In Singapore, this document is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).
First Sentier Investors (Singapore) 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.
MUFG and its subsidiaries are not responsible for any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this document 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.