Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
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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.
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Please read the following important information for First Sentier Global Listed Infrastructure Fund
• The Fund invests primarily in global listed infrastructure and infrastructure-related equity securities or equity related securities worldwide. Investments in infrastructure projects may involve risks including projects not being completed on time and within budget, changes in environment laws and regulations.
• The Fund’s investments may be concentrated in a single and limited/specialist sector or in fast growing economies which may have higher volatility or greater loss of capital than more diversified portfolios. The Fund may also expose to RMB currency and conversion risk.
• Small/ mid-capitalisation securities may have lower liquidity and their prices are more volatile to adverse economic developments.
• The Fund may use FDIs for hedging and efficient portfolio management purposes, which may subject the Fund to additional liquidity, valuation, counterparty and over the counter transaction risks
• For certain share classes, the Fund may at its discretion pay dividend out of capital or pay fees and expenses out of capital to increase distributable income and effectively a distribution out of capital. This amounts to a return or withdrawal of your original investment or from any capital gains attributable to that, and may result in an immediate decrease of NAV per share.
• It is possible that a part or entire value of your investment could be lost. You should not base your investment decision solely on this document. Please read the offering document including risk factors for details.
A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at March 2024
Global Listed Infrastructure rose in March against a backdrop of broadly positive investor sentiment. The FTSE Global Core Infrastructure 50/50 index returned +3.4% while the MSCI World index^ ended the month +3.2% higher.
The best performing infrastructure sector was Energy Midstream (+6%), aided by a favourable demand outlook and rising commodity prices. Utilities / Renewables (+6%) also gained, helped by a growing awareness of likely increases in load growth (electricity demand) over coming years, driven by demand from data centres / AI, industrial on-shoring and electric vehicle charging. The stabilising interest rate environment also proved supportive. The worst performing infrastructure sector was Toll Roads (-1%), owing to concerns for political risk.
The best performing infrastructure region was Japan (+11%), whose electric utilities gained on indications of further progress towards nuclear plant restarts. The worst performing infrastructure region was Australia / New Zealand (flat), reflecting mixed returns from the region’s transport infrastructure stocks.
^ MSCI World Net Total Return Index (USD) is provided for information purposes only. Index returns are net of tax. Data to 31 March 2024. Source: First Sentier Investors / Lipper IM. All stock and sector performance data expressed in local currency terms. Source: Bloomberg.
Fund performance
The Fund returned +2.4% after fees in March, -99bps behind the FTSE Global Core Infrastructure 50/50 Index (USD, Net TR).
The best performing stock in the portfolio was large-cap US regulated electric utility and renewables developer NextEra Energy (+16%). During the month the company held a well-received Investor Day, setting out a robust case for renewables’ future growth prospects and highlighting its competitive advantages in this space. In a further positive for the stock, a long-running investigation into whether NextEra’s utility business had breached Florida election rules was closed during the month, with no finding of wrongdoing.
Midwest peer Evergy (+9%), which provides electricity to 1.7 million customers in Kansas and Missouri, gained on favourable regulatory developments in its Kansas service territory — historically a challenging jurisdiction for the company. Several other regulated US utility holdings including Southern Company (+7%), Exelon (+6%) and Alliant Energy (+6%) also delivered robust gains during the month. In the absence of material stock-specific news, these gains appear to have been driven by a growing focus on the long-term demand drivers for the utilities sector mentioned above, as well as the attractive value currently on offer within this space.
Houston-based energy midstream company Targa Resources (+14%) continued its strong run. The company, whose gathering & processing, transportation & storage and export infrastructure assets are focused on Texas’ Permian Basin, was supported by a robust production growth outlook across its areas of operation. DT Midstream (+7%) also performed well. The company’s assets include the LEAP Gathering Lateral Pipeline, which transports natural gas from the Haynesville Basin in Louisiana to the US Gulf Coast. During the month, ongoing legal disputes (unrelated to DT Midstream) saw the expected completion dates for two other pipeline projects in the region — potential competitors to LEAP — pushed out from 2024 to 2025.
In the airports sector, Flughafen Zurich (+10%) announced healthy 2023 earnings numbers. Business travellers have recovered to 22% of its passenger mix, close to pre-COVID levels of 26%. The construction of Noida International Airport near New Delhi, which Zurich will operate as a concession until 2061, is progressing on schedule.
Mexican peer ASUR (+5%) rose after reporting a year-on-year increase in passenger traffic of 4.8% for February 2024. Spanish operator AENA (+4%) appears set to benefit from indications of strong summer demand for low cost carrier EasyJet, which operates a number of routes to Spanish airports.
The worst performing stock in the portfolio was Chinese water utility Guangdong Investment (-28%), which announced a larger-than-expected dividend cut and left investors unclear as to the likely level of future dividend payments. Generally stable earnings from the company’s water business in 2023 were offset by impairments within its property development segment. Having gained strongly in February, Beijing Airport (-6%) and ENN Energy (-6%) gave up ground as lacklustre 2023 earnings numbers weighed on both stocks, and hopes of government support measures for the Chinese equity market faded.
US freight rail operator Union Pacific (-3%) dipped in March, as investors took profits following strong share price gains in recent months. The stock has benefitted from investor anticipation of operational improvements, following the appointment of Jim Vena as CEO in August 2023. Australian toll road operator Transurban (-2%) underperformed as the publication of the New South Wales Independent Toll Review Interim Report provided a reminder of the potential political risk faced by its network of Sydney toll roads. While the report’s authors proposed several revisions to existing tolling frameworks, legally binding concession agreements mean the company remains in a strong position to negotiate a fair outcome with the government.
Fund activity
No new stocks were added to the portfolio during the month, and positions in existing holdings were generally maintained at current weights.
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.
Earnings growth for the asset class is likely to be underpinned by a number of structural growth themes over coming years. We are optimistic about the substantial investment opportunities associated with the decarbonisation of the world’s energy needs. Utilities 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.
Our team’s recent meetings with US utility management teams have been characterized by optimism that demand growth for electricity is set to increase materially over coming years. This is likely to bolster the need for transition fuels such as natural gas, which have a crucial role to play in maintaining energy reliability and affordability. As well as underpinning utilities’ earnings growth, this is also likely to drive additional demand for North American energy midstream storage and transportation assets.
Digitalisation is another key theme for the asset class. We expect structural growth in demand for mobile data (underpinned by an ever-growing reliance on digital connectivity) to support longterm earnings growth for Towers. The adoption of 5G technology over coming years will require networks to handle increased data speed, as well as a much higher number of connected devices. The surge of interest in AI is driving data center demand, as well as boosting the need for electricity.
Source : Company data, First Sentier Investors, as of 31 March 2024.
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 I (Distributing) USD 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.
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Important Information
Investment involves risks, past performance is not a guide to future performance. Refer to the offering documents of the respective funds for details, including risk factors. The information contained within this material has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. To the extent permitted by law, neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. It does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment. The information in this material may not be edited and/or reproduced in whole or in part without the prior consent of FSI.
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