Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
Discover more
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.
Discover more
A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at June 2021
Global Listed Infrastructure delivered mixed returns in June, as economic reopening optimism was tempered by coronavirus variant concerns. The best performing infrastructure sector was Towers (+6%), on the view that the rollout of next-generation networks would be supportive of tower earnings growth. Lower bond yields provided an additional tailwind to these interest rate sensitive companies. Pipelines (+5%) also gained against a backdrop of higher energy prices and increasing hydrocarbon demand.
The worst performing infrastructure sector was Multi-utilities (-3%), as investors sought assets with more sensitivity to increasing levels of economic activity. In the Railroads (-2%) sector, Japanese passenger rail operators gained as the country’s vaccine rollout accelerated. However North American freight rail stocks lagged despite consistently strong volumes, on concerns that unusually hot weather in the US and Canada may affect Agriculture haulage volumes.
The best performing infrastructure region was Canada (+3%), led higher by substantial gains for its pipeline operators. The worst performing infrastructure region was Latin America (-2%), reflecting underperformance from Brazil’s utility stocks.
Fund performance
The Fund returned -0.4% after fees in June1 , 112 basis points behind the FTSE Global Core Infrastructure 50/50 TR Index (SGD).
The best performing stock in the portfolio was US tower operator SBA Communications (+7%), which increased along with its domestic and international peers American Tower (+6%) and Inwit (+4%). The tower industry is benefitting from continued network investment in 5G to cope with rising data consumption. Ericsson’s June Mobility Report reported 46% year-on-year growth in mobile network data traffic globally.
The portfolio’s pipeline holdings delivered positive returns. Natural Gas Liquids-focused Enterprise Products Partners (+2%) increased on the appeal of its highly integrated asset footprint, strong balance sheet and attractive valuation multiples, including a ~7.5% dividend yield. Liquefied Natural Gas exporter Cheniere Energy (+2%) continued its strong run of performance, aided by keen demand from Asian customers. The stock is uniquely positioned to benefit from the key role that natural gas is expected to play as a transition fuel over coming decades. The ongoing bidding war between Pembina Pipeline (+2%) and alternative asset manager Brookfield for Canada’s Inter Pipeline (+15%, not held) further illustrated the keen demand for energy infrastructure assets.
Australian infrastructure stocks also performed well. Transurban (+4%) was supported by the continued resilience of traffic volumes on its networks of Australian and North American toll roads, in addition to lower bond yields. Freight rail operator Aurizon (+3%) held a well-received Investor Day, highlighting significant operational efficiency improvements; and outlining plans to expand its bulk haulage business (iron ore, cement, metals, grain, livestock) in order to mitigate the medium term decline in thermal coal haulage volumes.
The worst performing stock in the portfolio was China Gas (-18%). The company’s share price fell sharply after a fatal gas explosion in a residential neighbourhood in central China’s Shiyan City. It was the first major gas accident faced by China Gas in over 20 years. Preliminary reports suggest the operator, a Joint Venture company partly owned by China Gas, failed to conduct the required safety checks. In previous accidents at other gas utilities, responsibility has been borne at JV level rather than by the group-level company. We expect a similar outcome for China Gas in this case.
US utilities underperformed despite solid fundamentals, moderating bond yields and a lack of material company-specific news. Laggards in this space included Xcel Energy (-6%), Avista (-6%), Pinnacle West (-3%) and Dominion Energy (-3%). Factors that should prove supportive of the sector over the medium term include regulatory frameworks with scope for allowed returns to be raised if inflation increases; and structural earnings growth from the replacement of fossil fuels with cheaper, cleaner renewables.
European transport infrastructure also lagged as the spread of the Delta coronavirus variant threatened to weigh on the continent’s summer tourism volumes. These concerns affected toll road operators Eiffage (-5%) and Vinci (-3%), as well as airport operators Flughafen Zurich (-4%) and AENA (-4%). Italy’s Atlantia (-5%) also lagged, despite announcing that part of the €8 billion proceeds of its sale of the Italian motorway concession ASPI would be used to fund a share buy-back of between €1 and €2 billion (7% - 15% of its market capitalisation) next year, in addition to a dividend payout of €600 million (a 4.5% yield) each year between 2022 and 2024.
Annualised performance in SGD (%) 2
Cumulative performance in SGD (%) 2
Asset allocation (%) 2
Top 10 holdings (%) 2
1 First Sentier Global Listed Infrastructure Fund’s cumulative return over one month. The performance of the fund is based on the Singapore unit trust, net of fees, expressed in SGD terms.
2 Source: Lipper & First Sentier Investors. Single pricing basis with net income reinvested. Data as at 30 June 2021. Allocation percentage is rounded to the nearest one decimal place and the total allocation percentage may not add up to 100%. First Sentier Global Listed Infrastructure Fund inception date: 3 March 2008.
* From inception - 31 May 08 : S&P Global Infrastructure Index; From 1 Jun 08 – 31 Mar 15 : UBS Global Infrastructure and Utilities 50-50 Index; From 1 Apr 15 : FTSE Global Core Infrastructure 50/50 Index.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
Fund activity
The Fund divested its holding in regulated US electric and gas utility NiSource after a period of strong performance saw it move to a lower ranking within our investment process.
Market outlook and fund positioning
The Fund invests in a range of global listed infrastructure assets including toll roads, airports, railroads, utilities, pipelines, and wireless towers. These sectors share common characteristics such as barriers to entry and pricing power that we believe can provide investors with inflation-protected income and strong capital growth over the medium-term.
A key question for investors is whether current rising prices are a transitory phenomenon, or whether the global economy is now about to embark on a sustained period of higher inflation. Infrastructure assets are typically able to increase prices in line with inflation. This can be achieved via the terms of their regulatory frameworks, concession agreements or customer contracts; or in some cases by operating from a strong strategic position with limited competition. Accordingly, infrastructure assets can often maintain and grow earnings in real terms, supporting a stable and growing distribution yield over time. This history gives us confidence that listed infrastructure would fare relatively well in the event of a higher inflation environment.
The asset class is also set to benefit from a number of other positive drivers. Government attempts to bolster economic fundamentals through infrastructure and green energy stimulus plans are likely to prove supportive of 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.
Ever-increasing demand for mobile data / connectivity continues to underpin steady earnings growth for Towers and Data Centres, insulating them from the ebbs and flows of the broader global economy. 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.
Source : Company data, First Sentier Investors, as of end of June 2021.
Important Information
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.
 |  |
|---|