Global Listed Infrastructure declined in the September quarter as a combination of rising interest rates, political interference and equity issuance dampened returns.

Market Review

Global Listed Infrastructure declined in the September quarter as a combination of rising interest rates, political interference and equity issuance dampened returns.

The Fund fell -1.2% over this period, compared to a return of +1.8% by its benchmark index1. Global equities2 ended the quarter +6.3% higher.

Annual Performance (% in GBP) to 30 September 2018

Cumulative Performance (% in GBP) to 30 September 2018

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 State Investments (UK) Limited. *The benchmark changed from the UBS Global Infrastructure & Utilities 50-50 Index on 01/04/2015. 

¹ FTSE Global Core Infrastructure 50/50

² Based on MSCI World Net Total Return Index, GBP

Fund Activity

The Fund initiated a position in Williams, an energy infrastructure company with core assets in strategic locations. The sale of non-core assets has enabled the company to repair its balance sheet, reduce commodity exposure and lower operational risk. The company made positive changes to its Board and management team, and moved to simplify its corporate structure. Williams can now focus on connecting rising natural gas production in Texas and the Northeast US with growing demand from eastern US population centres and LNG export facilities.

SBA Communications owns a high quality portfolio of wireless towers with long-term visibility from contracted revenues. Structural growth is driven by demand for wireless data, price escalators and share buybacks. The company offers a focused strategy from a management team with strong execution and clear alignment. Recent underperformance means our concerns on their exposure to Latin America are now discounted in valuations, providing an attractive entry point.

Emera is a Canadian-listed electric and gas utility deriving most of its earnings from business-friendly jurisdictions in the United States. A period of significant underperformance, reflecting concerns for its stretched balance sheet from the US$10 billion acquisition of a Florida-based utility, presented an appealing entry point. The company's refocus on organic rate base growth, along with the expected sale of non-core assets, should enable Emera to re-rate to valuation multiples that better reflect the quality of its underlying regulated business.

Outlook

The Fund invests in a range of global listed infrastructure assets including tollroads, airports, ports, railroads, utilities, pipelines, and wireless towers. 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. 

Tollroads represent the Fund's largest sector overweight. Tollroad operators provide an essential service in congested corridors. Traffic volumes tend to be resilient and inelastic to price increases. Transurban has a dominant market position within Australia's largest cities and significant optionality to further enhance its networks. Peers in Europe, China and Latin America face greater political and economic challenges, but these risks are fully discounted in current valuations.

Energy pipelines offer exposure to regulated or contracted assets. Sentiment towards the sector is improving as companies have taken steps to sell non-core assets, reduce leverage and simplify corporate structures. The sector is well positioned to benefit from structural growth in North American energy exports.

The Fund remains underweight airports and some US utilities. Despite strong growth prospects and high quality assets, many companies in these sectors are trading at valuations that we find difficult to justify based on company fundamentals.

Overall, recent performance has been impacted by rising interest rates and political interference. With these key risks now discounted into valuations, we are cautiously optimistic that market sentiment will become more positive although this is not guaranteed.

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.

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References to "we" or "us" are references to First State Investments.

In the UK, this document is issued by First State Investments (UK) 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 within the EEA, this document is issued by First State Investments International Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, Midlothian, EH2 1BB, number SCO79063.

The fund is a sub fund of First State Investments ICVC ('the Company'), which is an investment company with variable capital incorporated in England and Wales. The Company is structured as an umbrella company. Each fund may issue different classes of share and within each class there may be different types of share.

Detailed information about the Company and its sub funds is contained in the Prospectus and Key Investor Information Documents which are available free of charge by writing to: Client Services, First State Investments (UK) Limited, Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB; or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday; or by visiting www.firststateinvestments.com. Telephone calls with First State Investments (UK) Limited may be recorded.

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.

First State Investments (UK) Limited and First State Investments International Limited are part of Colonial First State Asset Management ("CFSGAM") which is the consolidated asset management division of the Commonwealth Bank of Australia ABN 48 123 123 124. CFSGAM includes a number of entities in different jurisdictions, operating in Australia as CFSGAM and as First State Investments elsewhere. The Commonwealth Bank of Australia ("Bank") and its subsidiaries do not guarantee the performance of the fund or the repayment of capital by the fund. Investments in the fund are not deposits or other liabilities of the Bank or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested.

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