- The managers invest in energy, communications, utilities and transport
- Bad news has dragged down some shares, but long-term performance is good
- The fund features on the Wealth 150 list of our favourite funds
Energy, transport, communications. Without these industries the world as we know it wouldn’t function. Yet few funds focus on the infrastructure sector. First State Global Listed Infrastructure does.
We like the fund because it invests in a variety of specific industries and countries around the world. The managers pick a small selection of companies that own or operate things like, ports, toll roads and utilities. Over time demand for these things normally increases, or at least stays steady. Investing in relatively few shares means each one can have a big impact on performance and over the long term it’s delivered excellent results.
Of course this can work both ways. So when a couple of companies ran into trouble recently, it hurt performance a lot.
We believe the managers’ approach will serve investors well. Though like solar panels waiting for the sun to shine, there are no guarantees.
Recent performance has been disappointing. The fund returned -4.3% over the past year compared to -1.5%* for its benchmark. Some shares have done very badly. CCR, a Brazilian transport company, was hit with corruption charges. The company denies the claims, but the news caused the stock to fall by a third. PG&E, which supplies gas and electricity to nearly two thirds of California, was blamed for their role in the Californian wildfires last year. It’s facing a multi-billion dollar damages bill, sending its shares down also by a third. The managers continue to hold both companies, as they believe their long-term prospects outweigh these short-term problems.
As infrastructure projects require so much time and money, it can take a while before they start to make a profit. Like investing in general, a long-term view is therefore needed. The fund has grown 11.2% per year on average since it launched. Its benchmark, the FTSE Global Core Infrastructure 50/50 has grown on average 8.8% annually. These figures will be different in the years ahead.
Performance since launch
Past performance is not a guide to the future. Source: Lipper IM to 31/05/2018.
|Annual percentage growth|
|May 2013 -
|May 2014 -
|May 2015 -
|May 2016 -
|May 2017 -
|First State Global Listed Infrastructure||10.6%||15.1%||7.0%||33.2%||-4.3%|
|FTSE Global Core Infrastructure 50/50||4.6%||16.1%||5.6%||31.1%||-1.5%|
Past performance is not a guide to the future. Source: Lipper IM* to 31/05/2018.
How does the fund invest?
The fund is co-managed by Peter Meany and Andrew Greenup. Most investment decisions are based on whether the managers like a company. They don’t pay too much attention to what’s going on in the economy.
The managers invest more in utilities than any other sector. They like utility companies that have stable earnings and are modernising their power networks. The managers also invest a lot in toll roads as they earn steady income that’s normally inflation-proof.
More than half of the portfolio is invested in North America. That’s where the managers have found the most opportunities. Three of the most recent purchases have been in Canadian companies, including TransCanada. It’s in the pipeline sector and runs one of the largest energy networks in the continent. Pipelines generally are out-of-favour with investors at the moment due to rising oil prices. This meant shares in TransCanada could be bought at an attractive price.
The fund is invested 9% in higher risk emerging markets. That’s because the managers have found it difficult to find quality companies in those countries.
One of the recently sold investments is Kamigumi, a Japanese port operator. The managers had held the company’s shares since the fund began. Other investors valued it highly as well, which pushed up the share price. The managers felt the price had become too high and so sold the shares for a profit.
Despite recent poor performance, the managers are optimistic about the future. The managers believe the infrastructure sector is growing. The total market size of infrastructure companies has grown on average 10% each year since 1997 when the fund launched, although this isn’t a guide to future performance. The sector has traditionally risen more slowly than global shares and fallen less in downturns. Infrastructure could, therefore, provide some shelter to your portfolio if the markets fall. Neither the direction of the market, nor how the fund will perform, are certain though.