Market review
Global Listed Infrastructure shrugged off a renewed focus on inflation and rising interest rates to deliver positive returns in August. The FTSE Global Core Infrastructure 50/50 index gained +3.0% while the MSCI World index^ ended the month +0.2% higher.
The Airports (+3%) sector performed well, as June quarter earnings numbers highlighted positive operating leverage to improving passenger volumes. The worst performing infrastructure sector was Towers / Data Centres (-6%). These relatively interest rate-sensitive stocks lagged after a speech by the head of the US Federal Reserve emphasized a determination to keep raising interest rates until inflation subsides.
The best performing infrastructure region was Latin America (+8%), reflecting strong returns from Mexico’s airports and Brazil’s railroads and toll roads. The worst performing infrastructure region was the United Kingdom (-5%). Its utilities fell after higher natural gas prices caused a sharp rise in the regulator-set limit on UK consumer energy bills from October onwards. This led to concerns about the potential need for changes to the regulatory model, or political intervention.
Fund performance
The Fund returned +4.4% after fees1 in August, +140 bps ahead of its benchmark index.
Annual Performance (% in GBP) to 31 August 2022
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 base currency of the share class, the return may increase or decrease as a result of currency fluctuations.
Performance data 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. First Sentier Global Listed Infrastructure Fund, Class B (Accumulation) GBP shares. Benchmark is the FTSE Global Core Infra 50/50 TR Index from 1 April 2015, prev. UBS Global Infra & Utilities 50/50 TR Index. ^MSCI World Index (GBP) is provided for information purposes only. Index returns are net of tax. Data to 31 August 2022. Source: First Sentier Investors UK Funds Limited/Lipper IM.
The best performing stock in the portfolio was Japanese passenger rail operator West Japan Railway (+11%). Earnings numbers for the June quarter included the company’s first quarterly profit since the COVID-19 pandemic began, underpinned by a recovery in passenger numbers.
Mexican airport operator ASUR (+11%) outperformed after passenger volumes for the month of July increased by 21% compared to the same period a year earlier. Passenger numbers at its airports have now exceeded 2019 levels by 19%. Swiss peer Flughafen Zurich (+5%) also climbed after better than expected earnings results for the first half of 2022, helped by traffic recovery and a disciplined approach to cost control. Spanish-listed AENA (-1%) gave up some ground; investor concerns that demand for its tourism-focused airports may be affected by a slowing economic environment outweighed news that July traffic levels had reached 92% of 2019 levels.
The portfolio’s US utilities performed relatively well in the “risk-off” environment. Many of these companies are expected to prove relatively immune to any economic slowdown that may arise as a result of the Federal Reserve’s interest rate increases. The signing of the Inflation Reduction Act into law by President Biden also buoyed sentiment towards this space. The Act is expected to provide greater certainty of earnings growth for utilities over the long term, particularly those involved in the transition away from fossil fuels and towards renewables. Stronger performers included Arizona’s largest utility, Pinnacle West (+3%), Minnesota-based Xcel Energy (+1%), and large-cap renewables leader and Florida utility operator NextEra Energy (+1%).
The worst performing stock in the portfolio was Danish-listed renewables developer Ørsted (-14%), which announced disappointing June quarter earnings results, owing to weaker than expected performance from its offshore wind division. Towards the end of August, the company announced that Hornsea 2, the world’s largest installed wind farm, was fully operational. Ørsted now has 13 operational offshore wind farms in the UK, which can generate enough power for more than 7 million homes.
UK utility SSE (-7%) also underperformed after Russian energy company Gazprom announced it would suspend gas flows to Germany via the Nord Stream 1 pipeline, pushing natural gas prices sharply higher. As noted above, these higher gas prices triggered concerns about the potential need for political or regulatory intervention in UK (and European) power markets. On the other side of the equation, US Liquefied Natural Gas exporter Cheniere Energy (+7%) announced better than expected June quarter profits and raised earnings guidance for the year, as energy market uncertainty drove strong global demand for reliable sources of natural gas.
Fund activity
No material changes were made to Fund positioning during the month.
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.
Against an unpredictable economic backdrop, listed infrastructure remains supported by a number of structural growth drivers. 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 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. In the medium term, the roll-out of electric vehicles is then expected to provide an additional boost to utilities – first from investment opportunities associated with linking EV charging stations to the grid; and then from higher overall demand for electricity. Our strategy has a long-held preference for US over UK / European utility companies, owing to relatively transparent and fair US regulatory frameworks and historically lower levels of US political and regulatory interference.
Digitalisation is another key theme for the asset class. Structural growth in demand for mobile data (underpinned by an ever-growing reliance on digital connectivity) continues to support steady earnings growth for Towers and Data Centres, insulating them from the ebbs and flows of the broader global economy. The changes required during the pandemic have already led to a greater reliance on wireless data in many people’s everyday lives. The adoption of 5G technology over the medium term will require networks to handle increased data speed, and a much higher number of connected devices.
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.
Important Information
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 © (2022) First Sentier Investors
All rights reserved.
Get the right experience for you
Your location : United Kingdom
Australia & NZ
- Australia
- New Zealand
Asia
- Hong Kong (English)
- Hong Kong (Chinese)
- Singapore
- Japan