Investing in infrastructure is about investing in the companies that provide essential services to society, and earning predictable, reliable returns in the process.
More than 350 infrastructure and utility companies are listed on global stock markets, with the sector having a combined market capitalisation in excess of US$4trillion; about three times the market value of the Australian stock market1. The services provided by these companies are essential to the efficient function of communities, providing assets that have reliable earnings growth and stable income streams in times of market declines. As investments, infrastructure stocks exhibit unique characteristics, including reliable cash generation, inflation protection, defensiveness in declining markets, and low correlations with other asset classes creating a compelling case to include the sector in a diversified portfolio.
As it is traditionally defined, infrastructure typically refers to large, tangible assets that deliver essential services. While utilities, highways and pipelines are widely regarded as infrastructure, the status of other assets, including car parks, data centres, and satellites attracts debate. Notwithstanding this complexity, the case for investing in infrastructure is clearly demonstrated by an examination of the sector’s attributes.
WHY INVEST IN LISTED INFRASTRUCTURE?
As an asset class, infrastructure exhibits four distinctive characteristics:
Including infrastructure in a diversified portfolio can enhance returns and reduce portfolio risk.
OUR INFRASTRUCTURE PHILOSOPHY
Our investment approach for infrastructure and utilities is founded on two principal objectives: to achieve attractive risk- adjusted returns over the medium to long term and to reduce the risk of permanent capital loss. We are an absolute-return focused manager that seeks to invest in the most advantaged infrastructure companies in the world.
WHAT SETS OUR APPROACH APART?
Where our strategy is different is that we apply a stricter definition to what qualifies as infrastructure. Our experience tells us that investors allocate to infrastructure and utilities seeking reliable investment returns. To achieve this objective, we limit our investment universe to stocks that provide investors with predictable, through-the-economic-cycle, inflation-linked returns.We exclude stocks whose earnings are sensitive to competition, movements in commodity prices, and sovereign risk.
The stocks we consider for the strategy are mainly drawn from two sectors:
Regulated utilities, which includes energy and water utilities. We estimate that utilities comprise about 60% of the potential investment universe for the strategy. Utilities are typically regulated by a government-sponsored entity. Such regulation requires the utility to provide an essential service while allowing the utility to earn a fair rate of return on the capital it has invested.
Infrastructure, which includes toll roads, communications assets, energy infrastructure (oil and gas pipelines) and airports.
MAGELLAN’S INFRASTRUCTURE TEAM
Our infrastructure team consists of seven investment professionals with over 100 years of experience collectively. The team is headed by Gerald Stack and manages over A$16.1 billion* for large and small investors based around the world.
MAGELLAN INFRASTRUCTURE FUND
Our infrastructure strategy seeks to provide efficient access to the stable returns offered by the infrastructure asset class while protecting capital in adverse markets. The strategy typically holds between 20 and 40 infrastructure and utility stocks.
Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 (‘Magellan’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au.
Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain ‘forward-looking statements’. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.
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OUR INFRASTRUCTURE PHILOSOPHY