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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
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formerly Realindex Investments
Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.
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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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A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at February 2024
Global Listed Infrastructure rose in February, aided by a generally favourable set of earnings results. The best performing infrastructure sector was Other (+7%), as EM port stocks continued their strong run. Railroads (+6%) outperformed on activist investor interest and hopes of volume and margin improvements for North American freight rail operators. The worst performing infrastructure sector was Towers / Data Centres (-3%), as market consensus around the likely timing of future interest rate cuts was extended.
The best performing infrastructure region was Asia ex-Japan (+7%), as Chinese stocks were buoyed by indications of government support measures for the country’s stock market and broader economy. The worst performing infrastructure region was the UK (-4%), reflecting underperformance from its electric and water utilities.
Market outlook and Strategy
The Portfolio 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 companies 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. Strong 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. Following a challenging 2023, balance sheets are now in better shape and customer bill pressures are declining. Capital expenditure growth should accelerate, reflecting the need for increased resiliency spend and higher electricity usage growth from data centres, industrial on-shoring and electric vehicles.
The portfolio remains underweight energy midstream. Supportive oil and natural gas prices, robust LNG export levels and a disciplined approach to capital expenditure are enabling the sector to generate strong free cash flow. However, following a sustained period of strong performance, mispricing in this sector has become less evident. We have maintained high conviction positions in companies operating in low cost basins; or that are positioned to benefit from growth in US LNG exports.
Source : Company data, First Sentier Investors, as of 29 February 2024.
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