This is a financial promotion for The First Sentier Global Listed Infrastructure Strategy. This information is for professional clients only in the EEA 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.
- Charges to capital risk: The fees and expenses may be charged against the capital property. Deducting expenses from capital reduces the potential for capital growth.
- 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.
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.
Infrastructure powers the world we live in - and when it comes to on-the-ground- research, our team can be found on site.
Why invest in the First Sentier Global Listed Infrastructure strategy?
Listed infrastructure provides essential services to society, making it less sensitive to the economic cycle.
Growth is being driven by long term structural themes such as the build-out of renewable energy; the need to ease urban congestion; and increasing reliance on mobile data.
Gain a liquid and diversified exposure to infrastructure, managed by a specialist team.
How we invest in global listed infrastructure
From digital connectivity to renewable energy, we invest in the long-term themes shaping the world....
At First Sentier Investors our Global Listed Infrastructure team researches the market for what we believe are world-leading companies tackling the major infrastructure challenges the world faces.
That search takes us well beyond Australia's borders. Trent Koch, Portfolio Manager, discusses where we are finding the best opportunities.
The potential of solar
The last decade has seen carbon-free renewables, with the help of low cost natural gas, start to displace coal and oil from the developed world's electricity supply. The International Energy Agency predicts that between 2019 and 2024, the world will add enough renewable generation capacity to power the entire United States.
The continued build-out of renewables, and the need to upgrade and expand energy transmission networks, is expected to underpin stable earnings growth across the utilities sector. Consumers and the environment stand benefit from increasing supplies of clean, affordable energy. One of the largest positions in our portfolio is NextEra Energy, a large cap US utility whose assets include regulated utility businesses and clean energy leader NextEra Energy Resources.
Australia has one of the world’s greatest solar opportunities, but are we doing enough?
First Sentier Investors’ Global Listed Infrastructure Portfolio Manager, Rebecca Myatt explores the Australian solar landscape.
Australia is both leading and lagging in the development of solar
While Australia leads the world in rooftop solar, we lag other markets like the US in the development of large scale solar infrastructure, with government policies and incentives less attractive than other markets.
Whether it is solar, wind or water, the opportunity for investors is ever growing. But not all countries are developing at the same pace – making global research and access to global markets vital to investment success.
Australia leads the world in rooftop solar...
… but lags in large scale utility solar
Source: Bloomberg as at 2018.
Source: Australian Photovoltaic Institute, Bloomberg as at 30 November 2019.
Solving urban congestion
On the road from Sydney to Washington
Innovative infrastructure companies are also helping relieve urban congestion around the world. ASX-listed toll road company Transurban operates portfolios of toll roads in Australia and North America, including the 95 Express Lanes in Washington DC. These give commuters a guaranteed speed of at least 90km/h, facilitated by innovative dynamic pricing.
We look at 12-15 toll road businesses globally, and we have found that Transurban’s management and operations are world best practice.
Putting driverless cars on the roadmap
Transurban has transformed from a ‘construction’ company to a company where 40% of employees work in technology. They are preparing for the advent of electric and autonomous vehicles and the changing patterns of road use they will bring. They use military-grade video-capture technology to reduce accidents and congestion on their roads.
An exceptional infrastructure company
With a sustainable yield of almost 5% growing at 5-8% per annum, Transurban offers high quality assets with limited economic sensitivity and pricing linked to inflation – or better.
Head of Global Listed Infrastructure
Transurban is one of the largest positions in our portfolio
Source: Transurban, First Sentier Investors as at 2020. Chart shows earnings before interest, tax, depreciation and amortizaton. The earnings for 2020 and onwards are expected earnings based on First Sentier forecasts. They are predictive in nature and therefore not guaranteed to occur. They may be affected by inaccurate assumptions, known or unknown risks and uncertainties, and may differ materially from the results ultimately achieved.
Every investment decision impacts our world
Infrastructure companies have service obligations and moral accountability to the communities in which they operate
We have formally integrated analysis of environmental, social and governance (ESG) factors into our investment process for over a decade. ESG considerations account for 24% of a company’s score in our quality assessment and ranking model.
Climate change is the most material ESG theme affecting our investment strategy
In the utilities space, attempts to reduce carbon emissions have significant implications for the way in which electricity is generated, transmitted and distributed. Large-scale capital investment in renewables is being led by large cap, publicly-listed electric utilities.
The replacement of older coal-fired power stations with wind and solar power is expected to present substantial capex opportunities for many utilities over coming years. Looking ahead, climate change also has material implications for energy pipelines, which could face stranded asset risk; and freight railways, whose haulage mix may evolve as coal volumes decline further.
We influence companies towards ESG best-practice, engaging on material issues to achieve specific outcomes
Engaging with Kinder Morgan
Pipeline operator Kinder Morgan's board initially recommended voting Against providing methane emissions reporting and a 2 degree scenario analysis report. We believe that as shareholders, we have the right to clear disclosure around how the company monitors, manages and minimises climate change and sustainability-related risks.
We requested that Kinder Morgan improve their environmental disclosure procedures, particularly relating to Greenhouse Gas emissions. The company is now working on a new framework which will enable them to provide more information on these topics. US$22 million will be spent on improving their data collection, assessment and production systems.
How do I use listed infrastructure in my portfolio?
Delve deeper into a global equities exposure
Based on our analysis, many global equity managers hold less than 2% of their portfolios in infrastructure assets – and these positions tend to be concentrated in the larger utility names. We have generated much of our alpha from growing mid cap stocks, such as toll roads, oil storage and gas utilities, which are often under-researched by global equity managers.
Infrastructure the world relies on
Over the past 15 years, global listed infrastructure has returned over 3% more than global equities on average with a lower level of volatility.*
These attractive risk-adjusted returns have been delivered by assets with high barriers to entry, strong pricing power, predictable cash flows and sustainable growth.
Growth of a £10,000 investment
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: First Sentier Investors.
*The benchmark changed from the UBS Global Infrastructure & Utilities 50-50 Index on 01/04/2015.
Discover opportunities in infrastructure
Infrastructure provides essential services for the way we live. It also offers investment opportunities as companies look to solve issues around digital connectivity, urban congestion and renewable energy.
Head of First Sentier Investors Global Listed Infrastructure, Peter Meany discusses how infrastructure can offer investors steady dividend growth, inflation protection and long-term capital growth.
Questions your client might ask about investing in listed infrastructure
What is an infrastructure investment?
The main infrastructure asset types include transportation systems like rail, airports and toll roads; communication systems like mobile/cellphone towers; and water, gas and electricity utilities. These assets are essential to the day-to-day functioning of our society. They typically offer more stable returns than many other investment options.
What are the risks of investing in infrastructure?
The key risks for infrastructure investors are political and regulatory intervention. These risks can be mitigated by diversification across countries, sectors and regulators, and by using an active manager who is able to understand and navigate those risks. Infrastructure investment funds may also be vulnerable to factors that particularly affect the infrastructure sector, for example natural disasters or operational disruption.
Is listed infrastructure an asset class?
In short, yes. While investors have embraced infrastructure as an asset class since the 1990s, the idea of investing in infrastructure via listed securities was developed by a few Australian asset managers between 2005 and 2007. Global listed infrastructure is now widely acknowledged as a standalone asset class by asset consultants, investors and the funds management industry. Today we estimate funds under management in global listed infrastructure to stand at around US$100 billion. It’s also worth remembering that infrastructure assets also have their own risk and return profile; and benefit from structural drivers that can be quite distinct from those of global equities.
How should I be using infrastructure in my portfolio?
Use of listed infrastructure within investor portfolios has varied over time. Initially we saw it used as a defensive, low volatility equity. This expanded to see it used as a source of income, as declining bond yields increased the relative appeal of its growing divided streams. More recently, we have seen listed infrastructure form part of the real assets segment of investors’ portfolios, due to the nature of its long-life, hard assets and ability to offer insulation from the effects of inflation as well as offer structural earnings growth. We have also seen investors utilise global listed infrastructure as a diversified, liquid and lower fee alternative to unlisted infrastructure allocations.
When should I invest in infrastructure?
You should always seek professional advice if you are unsure about your investment options. Historically, infrastructure investments have generated stable, predictable cash flows and delivered long-term growth. As part of a balanced portfolio these types of investments have tended to be less volatile than other equity classes. Due to these factors, infrastructure can be used through the economic cycle at all times as a lower volatility complement to global equities.
I already get exposure to infrastructure through my global equity fund, why would I need to invest in an infrastructure fund?
You probably get a little bit of exposure - but not very much. We estimate that most global equity managers may invest between 2% and 4% (or less) of their portfolio in infrastructure assets. This exposure could be concentrated amongst a small number of large, well-known utility names. However, much of the alpha generated in our diversified portfolio has come from mid-cap stocks, which are under-researched by global equity managers, such as toll roads, energy storage and mobile towers. If you decide global listed infrastructure suits your investment needs, then an explicit allocation in your investment portfolio would be needed to gain a meaningful exposure to the asset class.
Isn’t infrastructure just a low growth, bond proxy investment?
No. Infrastructure assets offer defensive, non-cyclical growth opportunities from a variety of areas.
- investment-driven earnings from the build-out of new transmission and distribution assets by electric, gas and water utilities
- clean renewable energy replacing carbon emitting, coal-fired electricity generation
- increasing equipment on mobile phone towers, to cope with growing data usage on smartphones
- rising traffic volumes on toll roads, as a result of urban congestion
While global listed infrastructure is a relatively interest rate sensitive asset class, it also has long term structural growth attributes.
Our corporate RI strategy is based upon three strategic pillars of quality, stewardship and engagement.
ESG issues are fundamental to infrastructure companies, given they have significant service obligations and moral accountability to the communities in which they operate.
ESG analysis is integrated into our investment process through our quality assessment and ranking model. This model consists of 25 criteria that influence stock returns in general and infrastructure securities in particular. A score is assigned to each criterion; a lower quality score makes it harder for a stock to be included within the overall portfolio. ESG criteria account for 20% of the overall quality score.
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