Investor Education

Investing in essential services

Investing in Essential Services

Have you ever thought about investing in essential services?

From the power that turns on your lights, to the water you drink, to the roads people use every day, these services are essential for our daily life.  Irrespective of the market conditions or who’s in government, the demand for these services are predictable and stable.

Investing in infrastructure is about investing in companies that provide these essential services to society.

People have been investing in infrastructure since the 1800’s when US utilities were listed on the New York Stock Exchange.  Today, the universe of investable companies is much broader and now includes airports, roads, pipelines and telecommunication towers.

As is the case for most infrastructure, the assets have natural monopolies that face little competition. For example, it makes little economic sense to have 2 sets of electric poles and wires on your street or  have 2 parallel motorways headed to the same destination.

Limited competition coupled with the predictable demand means high quality infrastructure companies have generated and we believe, can continue to generate attractive and stable returns for investors.

i) Regulated Utilities, ii) Transport Infrastructure and iii) social infrastructure.

Regulated Utilities include electric, gas and water utilities. As the name suggests, these companies are regulated by a government-sponsored entities who allow these monopolies to earn a fair rate of return with low potential for loss in exchange for delivering these essential services.

Regulation means these utilities are generally protected from changes in demand, inflation and interest rates. 

Transport Infrastructure includes such things as airports, telecommunication towers and toll roads. In this case, revenue grows in line with patronage whilst the prices they charge are typically linked to inflation. Think about cars on a motorway which are charged a toll. That toll often rises in line with inflation.

Social infrastructure includes hospitals, schools and prisons. The government takes on the demand risk and the operator will earn availability payments for maintaining the assets.

How do we do it?

At Magellan, our approach to infrastructure investing is built on two principle objectives.

Firstly, to deliver our investors attractive risk adjusted returns of Inflation plus 5% over the medium to long term; and

secondly, to protect our investors from permanent capital loss. This means protecting your capital when the markets go down.

Our team of analysts undertake fundamental research to identify high quality infrastructure companies that have demonstrated their ability to deliver reliable earnings whilst trading at a discount to our assessed intrinsic value. We seek to identify companies who are not sensitive to sovereign risk, competition and commodity price risk. 

By doing so, we believe investors should expect attractive real returns over the medium to long term, irrespective of market conditions.

Important Information: This material has been delivered to you to provide information regarding Magellan Asset Management Limited (‘Magellan’) and has been prepared for general information purposes and must not be construed as investment advice. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer or invitation to purchase, sell or subscribe for in interests in any type of investment product or service. No distribution of this material will be made in any jurisdiction where such distribution is not authorised or is unlawful. This material does not take into account your investment objectives, financial situation or particular needs. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. This material and the information contained within it may not be reproduced or disclosed, in whole or in part, without the prior written consent of Magellan.

How to invest

  • Magellan offers two market-leading strategies, global equities and global listed infrastructure. Find out how easy it is to invest in the world’s best companies, as chosen by Magellan’s experts.

  • Global equity products

    You buy from the world’s best companies, so why not invest in them? Magellan offers a range of highly-rated global equity funds, containing some the world’s best companies that we believe are positioned to benefit from long-term investment tailwinds.

    Find out why investing in a diversified global fund makes sense.

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  • Global listed Infrastructure products

    Infrastructure: Supporting you every minute of every day. Our range of top-rated global listed infrastructure funds are positioned to generate inflation-protected, stable yet solid returns.

    Discover why including listed infrastructure in a diversified portfolio can enhance returns and reduce portfolio risk.

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