A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at March 2021
Global Listed Infrastructure rose strongly in March, helped by supportive US policy proposals and M&A activity. The best performing infrastructure sectors were Multi-Utilities (+13%), Electric Utilities (+10%) and Towers / Data Centres (+10%), which in previous months had lagged the broader market during a period of rising interest rates. The worst performing infrastructure sectors were Airports (+1%) and Toll Roads (+5%), as the logistical challenges associated with the rollout of coronavirus vaccines muted gains for transport stocks.
The best performing infrastructure region was the United States (+11%), where President Biden’s US$2.3 trillion American Jobs Plan contained a number of positive implications for US infrastructure stocks. The worst performing infrastructure region was Europe ex-UK (+3%), reflecting a slow vaccine rollout and accelerating coronavirus case numbers.
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.
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. Recent congestion data indicates a positive traffic recovery during February and March on Transurban’s Sydney, Brisbane and Melbourne road networks.
The portfolio is also overweight Towers / Data Centres. Increasing demand for mobile data (reflecting the growing popularity of video streaming) continues to underpin steady earnings growth for tower companies, insulating them from the ebbs and flows of the broader global economy.
The portfolio is underweight the Airports sector. It remains to be seen how quickly consumer behaviour will return to normal, while business travel may never regain previous levels. The portfolio’s exposure is focused primarily on higher quality European operators such as Spain’s AENA whose passenger mix is tilted towards Leisure and VFR (visiting friends and relatives) travellers. These categories could see numbers rebound sharply as travel restrictions are lifted.
An underweight exposure to the Pipelines sector has also been maintained. While the sector has delivered solid gains in recent months, we remain conscious of the structural headwinds that these companies could face as Net Zero initiatives gather pace.
Source : Company data, First Sentier Investors, as of end of March 2021
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