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formerly Realindex Investments
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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 November 2023
Global Listed Infrastructure rose strongly in November as lower than expected inflation levels led to renewed hopes that the current interest rate cycle may have peaked.
The best performing infrastructure sector was Towers / Data Centres (+20%), aided by falling bond yields and activist intervention. Toll Roads (+9%) and Airports (+9%) also performed well on solid traffic numbers and hopes of a soft landing for the global economy. The worst performing infrastructure sector was Utilities / Renewables (+5%) as the “risk-on” mood saw investors focus on higher beta areas of the market.
The best performing infrastructure region was Latin America (+13%). Mexico’s airport stocks recovered ground as investors digested the potential implications of regulatory changes unexpectedly announced in October. The worst performing infrastructure region was Japan (+2%), following strong gains in recent months.
Market outlook and strategy
The Potfolio 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.
Earnings growth for the asset class is likely to be underpinned by a number of structural growth themes over coming years. We remain optimistic about the substantial investment opportunities associated with the decarbonisation of the world’s energy needs. Utilities, which represent about a half of the global listed infrastructure opportunity set, are positioned to derive steady, regulated earnings growth by building solar and wind farms, and by upgrading and expanding the networks needed to connect these new power sources to the end user.
Digitalisation is another key theme for the asset class. Structural growth in demand for mobile data (underpinned by an evergrowing reliance on digital connectivity) continues to support steady earnings growth for Towers and Data Centres. The adoption of 5G technology over coming years will require networks to handle increased data speed, as well as a much higher number of connected devices. This bodes well for continued capital expenditure into mobile networks, to the benefit of Towers.
There remains scope for continued recovery in the transport infrastructure space. We believe toll roads represent exceptional value at current levels, with traffic volumes proving resilient and inflation-linked concession agreements helping to support earnings growth. We also have a positive view of North American freight railroads. While the sector has faced challenges in 2023, these companies are unique and valuable franchises. Their whollyowned track networks are high quality infrastructure assets which can never be replicated. They typically operate under duopoly market conditions, with significant numbers of captive customers such as grain, chemical and auto producers giving them strong pricing power over long haul routes. Improving operating efficiency provides further scope to grow earnings.
Source : Company data, First Sentier Investors, as of end of November 2023
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