This is a financial promotion for The First Sentier Global Listed Infrastructure Strategy/Responsible Listed Strategy. This information is for professional clients only in the UK and elsewhere where lawful. Investing involves certain risks including:
- The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
- Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares.
- Single sector risk: investing in a single economic sector may be riskier than investing in a number of different sectors. Investing in a larger number of sectors helps to spread risk.
- Listed infrastructure risk: the infrastructure sector and the value of the Fund is particularly affected by factors such as natural disasters, operational disruption and national and local environmental laws.
- Concentration risk: the Fund invests in a relatively small number of companies which may be riskier than a fund that invests in a large number of companies.
- Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
For details of the firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information.
For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.
If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.
Global Listed Infrastructure dipped in September as higher energy prices, US political uncertainty and China’s Evergrande debt crisis weighed on financial markets. The FTSE Global Core Infrastructure 50/50 index returned -1.7%, while the MSCI World index^ ended the month -2.2% lower.
The best performing infrastructure sector was Airports (+6%), on US plans to ease pandemic-related restrictions in November for air travellers from 33 countries including China, India, Brazil and most of Europe. Pipelines (+5%) gained on the view that strong energy prices would prove supportive of the growth outlook for these companies.
The worst performing infrastructure sector was Towers / Data Centres (-9%) which were affected by rising bond yields, and as investors took profits following several months of strong performance. Utilities (-4% to -6%) underperformed owing to higher bond yields; a spike in natural gas prices which triggered concerns for rising input costs; and the threat of political interference in European power markets.
The best performing infrastructure region was Japan (+4%), where a coronavirus state of emergency was lifted at the end of the month. The worst performing infrastructure region was the United States (-6%) as its politicians debated raising the country’s debt ceiling, and continued to negotiate President Biden’s infrastructure stimulus initiatives.
The Fund returned -1.7% after fees in September1, in line with the FTSE Global Core Infrastructure 50/50 Index (GBP, Net TR).
Annual Performance (% in GBP) to 30 September 2021
These figures refer to the past. Past performance is not a reliable indicator of future results. For investors based in countries with currencies other than the share class currency, the return may increase or decrease as a result of currency fluctuations.
Performance figures have been calculated since the launch date. Performance data is calculated on a net basis by deducting fees incurred at fund level (e.g. the management and administration fee) and other costs charged to the fund (e.g. transaction and custody costs), save that it does not take account of initial charges or switching fees (if any). Income reinvested is included on a net of tax basis. Source: Lipper IM / First Sentier Investor (UK) Funds Limited. *The benchmark changed from the UBS Global Infrastructure & Utilities 50-50 Index on 01/04/2015.
The best performing stock in the portfolio was US Liquefied Natural Gas (LNG) producer and exporter Cheniere (+12%). The company, which owns and operates substantial LNG liquefaction facilities in Southwest Louisiana and South Texas, announced a US$10 billion capital allocation plan. Key points included initiating a quarterly dividend payment, resuming its share buyback program, reducing debt, and investing in further organic growth opportunities. High global demand for natural gas also buoyed sentiment towards the stock.
Pembina Pipeline (+5%), which operates a well-integrated portfolio of energy transportation and storage assets in Western Canada, made up ground after August’s share price declines. In contrast, Enterprise Products Partners (-3%) lagged peers. The company owns extensive US energy pipeline networks, storage capacity and export facilities and trades on attractive valuation multiples, but investors remained underwhelmed by the absence of additional capital management initiatives.
The portfolio’s airport holdings performed well. Spanish-listed AENA (+10%), the world’s leading airport operator by number of passengers, and Flughafen Zurich (+10%), which owns and operates Switzerland’s largest airport, were both supported by the prospect of traffic recovery over coming months. Passenger volumes for Mexican peer ASUR (+9%) have already returned to pre-pandemic levels. Cancun International Airport, the company’s largest asset, could see further growth as it continues to benefit from pent-up demand for leisure travel from the US and Canada.
The portfolio’s US electric utility holdings were affected by concerns that higher input costs would put upward pressure on customer bills, potentially leading to downward pressure on future rate base growth. The worst performing stock in the portfolio was US electric utility Entergy (-10%), as slow progress in restoring power to its Louisiana-centric service territory following damage from August’s Hurricane Ida weighed on sentiment towards the stock. Other large-cap US electric utilities including Eversource Energy (-9%) and Xcel Energy (-8%) also underperformed in this environment.
US tower operators American Tower (-9%) and SBA Communication (-8%) declined after a sustained period of outperformance. This appears to reflect a general rotation towards sectors with more exposure to post-pandemic reopening, rather than stock-specific factors. CyrusOne (+1%), which owns strategically located data centres in the US and is building a presence in key European markets, ticked higher on rumours that it was exploring strategic alternatives, including a potential sale of the company.
The Fund initiated a position in Iberdrola, a large cap, Spanish-listed electric utility with extensive regulated network assets in Spain and Portugal, the US, the UK, and Latin America. The company is also the second largest owner of renewable generation assets globally [after US peer and fellow portfolio holding NextEra Energy]. Political interference in the Spanish electricity market (a proposed claw back of generation profits) as energy prices increased saw Iberdrola sell off sharply in September, creating an attractive entry point.
Passenger rail operator West Japan Railway, whose network service area includes the Kansai region, the cultural centre of Japan, was also added to the Fund. The country’s recently-lifted state of emergency had reduced domestic travel volumes and weighed on the passenger rail sector. As the country’s large-scale vaccine rollout continues, West Japan Railway should be among the companies that benefit most from the country’s gradual reopening and return to economic normality.
The Fund divested its holding in Magellan Midstream Partners, which owns and operates refined product (gasoline and diesel) and crude oil pipeline networks in the US Midwest. The stock was sold after the prospect of a US economic recovery drove strong share price gains; and on concerns for its longer term growth prospects as the global energy transition drives a shift in demand from conventional to electric vehicles.
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, like barriers to entry and pricing power, which can provide investors with the potential for inflation-protected income and strong capital growth over the medium-term.
Toll roads represent the portfolio’s largest sector overweight, via positions in European, Asia Pacific and Latin American operators. We believe these companies represent exceptional value at current levels, with traffic volumes proving significantly more resilient than those of other transport infrastructure assets. While new coronavirus variants have clouded the near term outlook, we remain confident that toll roads will lead a return to normal demand levels as economic activity levels pick up.
The portfolio is overweight Gas Utilities, which we believe have an important role to play in the years ahead as economies transition to lower carbon energy sources. The portfolio’s holdings in this sector consist of a Chinese operator benefitting from central government support for the country’s transition away from coal; a defensive Japanese gas utility trading at deep value, and specialist US and European names operating from strong strategic positions within niche markets.
The portfolio is underweight Electric / Multi-Utilities. While these companies represent a large segment of the global listed infrastructure universe, and are a good source of yield and defence, some are trading at levels where limited mispricing is evident. That said, a substantial portion of the portfolio still consists of high conviction utility holdings. The portfolio’s focus is on companies with the scope to derive steady, low risk earnings growth from rate base investment (replacing ageing distribution networks, upgrading substations, expanding transmission lines); and the replacement of older coal-fired power stations with wind farms and solar power.
The portfolio is also 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.
1 Performance is based on OEIC B Acc share class, net of fees, expressed in GBP.
^ MSCI World Net Total Return Index, GBP.
All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered and does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.
This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this information.
References to “we” or “us” are references to First Sentier Investors.
In the UK, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743. Outside the UK and the EEA, issued by First Sentier Investors International IM Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SCO79063.
Certain funds referred to in this document are identified as sub-funds of First Sentier Investors ICVC, an open ended investment company registered in England and Wales (“OEIC”). Following the UK departure from the European Union, the OEIC has ceased to qualify as a UCITS scheme and is instead an Alternative Investment Fund (“AIF”) for European Union purposes under the terms of the Alternative Investment Fund Managers Directive (2011/61/EU). Accordingly, no marketing activities relating to the OEIC are being carried-out by First Sentier Investors in the European Union (or the additional EEA states) and the OEIC is not available for distribution in those jurisdictions. This document does not constitute an offer or invitation or investment recommendation to distribute or purchase shares in the OEIC in the European Union (or the additional EEA states). Further information is contained in the Prospectus and Key Investor Information Documents of the OEIC which are available free of charge by writing to: Client Services, First Sentier Investors (UK) Funds Limited, PO Box 404, Darlington, DL1 9UZ or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday or by visiting www.firstsentierinvestors.com. Telephone calls may be recorded. The distribution or purchase of shares in the funds, or entering into an investment agreement with First Sentier Investors may be restricted in certain jurisdictions.
Representative and Paying Agent in Switzerland: The representative and paying agent in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. Place where the relevant documentation may be obtained: The prospectus, key investor information documents (KIIDs), the instrument of incorporation as well as the annual and semi-annual reports may be obtained free of charge from the representative in Switzerland.
First Sentier Investors entities referred to in this document are part of First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not 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.
Copyright © (2021) First Sentier Investors
All rights reserved.