Close
SI-logo-black-png.png

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

Global Listed Infrastructure Monthly review and outlook

Global Listed Infrastructure Monthly review and outlook

A monthly review and outlook of the Global Listed Infrastructure sector.

Market review - as at June 2024

Global Listed Infrastructure dipped in June, giving back some of May’s strong performance. The best performing infrastructure sector was Other (+3%), owing to gains from high beta Emerging Markets container port operators. Energy Midstream (+3%) stocks were buoyed by favourable operating conditions and a positive demand outlook. The worst performing infrastructure sector was Utilities / Renewables (-4%) as concerns around future policy support weighed on US-based renewables-focused stocks.

The best performing infrastructure region was the United Kingdom (+2%), reflecting positive returns from its electric utility stocks. The worst performing infrastructure region was Japan (-6%), whose electric utilities lagged on a more cautious outlook for the potential timing of nuclear power plant re-starts.

Fund performance

The Fund returned -1.3% after fees in June1 , 87 basis points ahead of the FTSE Global Core Infrastructure 50/50 TR Index (SGD). 

The best performing stock in the portfolio was North American waste management company GFL Environmental (+24%). The company, which provides a comprehensive range of waste management and soil remediation services, employs over 19,500 people and operates in every Canadian province and across 24 US states. Its share price rose sharply following reports that it was evaluating potential takeover offers. This would be consistent with a recent pattern of consolidation within the North American waste management sector which includes Republic Services buying US Ecology in 2022, EQT Infrastructure acquiring Heritage Environmental Services in 2023, and Waste Management’s recently announced takeover of Stericycle.

US Liquefied Natural Gas exporter Cheniere Energy (+11%) climbed after announcing a US$4 billion increase to its share buyback program (equivalent to 11% of shares on issue) and a larger-than-expected 15% dividend increase. These moves follow the announcement in May of healthy March quarter earnings, and underscore Cheniere’s confidence in international demand for US LNG exports. A growing view amongst investors that higher energy demand within the US would drive appetite for natural gas proved supportive of several energy midstream stocks including DT Midstream (+9%). Natural Gas Liquids-focused Targa Resources (+7%) also rose, aided by robust hydrocarbon production levels in Texas’ Permian Basin where a substantial portion of its operations are located.

UK utilities were another area of strength for the portfolio. National Grid (5%) increased on the appeal of its relatively high rate-base growth and the central role it is set to play in the UK’s energy transition process. SSE (+2%), whose assets include regulated transmission and distribution networks as well as a substantial renewables division focused on offshore wind, gained on investor enthusiasm for the earnings growth potential associated with these assets.

The worst-performing stock in the portfolio was US utility AES Corp (-19%). The company is evolving from a geographically diversified independent power producer to a US-focused renewable energy company. Its share price was affected by worries that a win for Donald Trump in November’s US Presidential Election could erode current policy support for renewables. Other renewables-focused US utility holdings including NextEra Energy (-11%) and Dominion Energy (-9%) appeared to be affected by similar concerns.

Political risk also overshadowed other segments of the portfolio. French-listed infrastructure stocks including toll road and airport company Vinci (-14%) and Channel Tunnel operator Getlink (-5%) fell in the face of strong polling for the populist right-wing National Rally (RN) party, ahead of the country’s parliamentary elections. Previous RN policies have included the renationalisation of French toll roads. Australian-listed Atlas Arteria (-4%), whose largest asset is a 31% stake in APRR, a 2,400-kilometre motorway network in the east of France, also underperformed.

In Mexico’s recent presidential election, a larger-than-expected margin of victory for the left-wing Morena party affected airport operators GAP (-10%) and ASUR (-2%); and toll road operator PINFRA (-9%). These stocks lagged on nervousness that Mexican infrastructure concessions may now be more vulnerable to potential legal or regulatory changes.

 

1 Fund performance is based on the Singapore unit trust, net of fees, expressed in SGD terms.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.

Fund activity

A position in US regulated electric utility Entergy was divested. The stock has re-rated during our holding period and we are wary the upcoming Caribbean hurricane season may harm its US Gulf Coast-focused service territory. While regulators typically allow US utilities to pass these costs through to customers over time, there may be a lag between the costs being incurred and the time over which they can be recouped. 

Market outlook and fund positioning

The Fund 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 stocks 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. High 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. The shift from coal generation to wind, solar and storage, supported in the US by the Inflation Reduction Act; along with the need for increased resiliency spend, should drive meaningful capital expenditure growth for this sector. Increased capex should in turn drive higher rate base and earnings growth for regulated utilities. This theme is being amplified by growth in data centres / AI, industrial onshoring and electric vehicles, which are driving a steady increase in demand for electricity — the first time in decades that this has been seen in many developed markets. 

The portfolio remains underweight energy midstream. A rising oil price, robust US 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 positive 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 exports.

Source : Company data, First Sentier Investors, as of 30 June 2024.

 

Important Information

This material is prepared by First Sentier Investors (Singapore) (“FSI”) (Co. Reg No. 196900420D.) whose views and opinions expressed or implied in the material are subject to change without notice. To the extent permitted by law, FSI accepts no liability whatsoever for any loss, whether direct or indirect, arising from any use of or reliance on this material. This material 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 material. 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 material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions 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 material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in  this material 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.