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Power lines to profit: Top performing listed infrastructure funds

Listed infrastructure companies own and manage key assets across utilities, transportation, communication, and social sectors. Despite the allure of steady returns, consistent income generation and capital growth potential, these investments also carry their share of risks and complexities.

Delving into the realm of listed infrastructure has become a pivotal strategy for investors looking to diversify their investment portfolios. Akin to the role of real estate investment trusts (REITs) these infrastructure assets are traded on exchanges, allowing investors an accessible path to sectors essential to everyday life including utilities, toll roads, data centres and transportation, all without the hurdles of direct investment.

Investors can experience key benefits from exposure into listed infrastructure, including:

Steady income streams: This is due to infrastructure projects often generating stable, predictable cash flows, stemming from long-term contracts or regulatory frameworks. This characteristic makes listed infrastructure an attractive option for income-focused investors.

  • Inflation protection: Many infrastructure projects have revenue models that are directly linked to inflation. For example, toll roads or utility companies have agreements allowing them to increase prices in line with inflation, thereby providing a natural hedge against rising costs.

    Diversification: Given their unique characteristics and low correlation with traditional asset classes like equities and bonds, infrastructure investments can enhance portfolio diversification, potentially reducing volatility and improving risk-adjusted returns.

    Liquidity: As these assets are traded on stock exchanges, listed infrastructure provides higher liquidity compared to unlisted infrastructure investments. This facilitates easier entry and exit for investors, allowing for more dynamic portfolio management.

    Like all asset classes, listed infrastructure also bears risks that investors need to consider, such as:

    Market volatility: Listed infrastructure is highly exposed to stock market volatility. This exposure can lead to performance that fluctuates with investor sentiment and economic trends, sometimes causing asset prices to diverge from their actual value.

    Interest rate sensitivity: Interest rates significantly influence listed infrastructure investments. Rising rates increase borrowing costs, potentially reducing the attractiveness of debt-financed infrastructure projects and shifting investor focus to fixed-income assets, thereby impacting growth prospects.

    Regulatory and political risks: operating within the public service sector, listed infrastructure is vulnerable to regulatory and political shifts. Changes in policies can significantly impact the profitability and operations of these assets, highlighting the need for careful management and foresight.

    Professionally managing a portfolio of listed infrastructure presents several unique challenges that can impact portfolio performance and investment decisions.

    As at 29 February 2024, the average listed infrastructure manager represented by FE AMI Equity Infrastructure (aggregated peer group) data returned 2.9 per cent over one year and 5.3 per cent over the three years.

    From the Atchison APL there were a total 54 fund managers assessed, whereby the average 1 year return was 11.5 per cent and average 3-year return was 5.9 per cent.

    Below are the top three performing managers based on the Atchison APL over the one year and three years.

    Maple-Brown Abbott Global Listed Infrastructure Fund was top performer over the one year (+6.6 per cent), it was also leader of the pack over the three-year period (+13.5 per cent).

    BlackRock Global Listed Infrastructure Fund

    This actively managed fund seeks to surpass its benchmark by applying a detailed stock selection approach, grounded in a comprehensive understanding of the broader economic landscape and financial markets.

    This approach benefits from extensive, high-calibre research that gives it a competitive edge. Moreover, the fund enhances its strategies through collaboration and the exchange of ideas with investment and specialised teams throughout the BlackRock Group.

    Its objective is to deliver outstanding investment results by generating returns (pre-fees) that outperform the S&P/UBS Global Infrastructure and Utility Index over three-year cycles, all while keeping risk levels comparably low. Recently, the fund has maintained its overweight positions to US Electric Utilities and Eurozone Toll Roads.

    The Maple-Brown Abbott Global Listed Infrastructure Fund

    The Fund is proactively managed and focuses on investing in infrastructure securities around the world. These investments span regulated, contracted, and concession-based assets or networks critical for providing essential services, with a strong emphasis on sustainability and environmental, social, and governance (ESG) considerations.

    Such infrastructure investments are known for their lower volatility and more stable earnings, as well as enhanced protection against inflation. The fund predominantly includes securities with a market cap of over US$500 million.

    Its objective is to exceed the benchmark performance over consecutive five-year spans (the benchmark being OECD Total Inflation Index plus 5.5 per cent per annum). The most recent contributor to performance was Dutch storage tank infrastructure company Vopak which was up (+19 per cent as at February 29th ) after announcing a positive 2023 financial result due to higher occupancy.

    The fund’s top sector weights were electric utilities 23.2 per cent, multi-utilities 20.5 per cent and Communications Infrastructure 16.0 per cent. While some of the top holdings included American Electric Power, Cellnex Telecom and Ameren Corporation.

    ClearBridge RARE Infrastructure Value Fund – Unhedged

    The Fund is set to maintain a varied portfolio of global infrastructure securities, encompassing various sub-sectors like utilities (gas, electricity, water), toll roads, airports, railways, and communication networks across different geographical areas.

    It aims to offer investors consistent and reliable income, including dividends, distributions, and interest, alongside capital appreciation from a collection of global infrastructure securities, without implementing any hedging strategies for the currency exposure of the Underlying Fund.

    The benchmark for the Fund is an accumulation index that consists of the OECD G7 Inflation Index + 5.5 per cent annually. As at 29 February top three holdings includes CSX, Severn Trent, and PG&E Corporation.

    Will Arnost

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