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.
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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.
To learn more on how to access our Infrastructure funds, go to magellangroup.com.au/funds/forms-pds/
Magellan Infrastructure Fund
Magellan Infrastructure Fund (Unhedged)
Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) (ASX:MICH)
Core Infrastructure Fund
* As at 30 June 2023.
- https://www.ceicdata.com/en/indicator/australia/market-capitalization
- American Tower Overview – Q2 2023, Data as of June 30, 2023
- Ericsson Mobility Report 2023
- Australian Bureau of Statistics: 2020-21, total expenditure on distributed water by industry and households
- Canstar Blue research, January 2023.
- ngwa.org – https://www.ngwa.org/what-is-groundwater/About-groundwater/information-on-earths-water
- Australian Pipeline and Gas Association: https://www.apga.org.au/pipeline-facts-and-figures
- https://www.energy.gov.au/data/energy-consumption (2020- 2021)
- https://www.energy.gov/fecm/liquefied-natural-gas-lng
- https://www.epa.gov/green-power-markets/us-electricity-grid-markets
- https://www.eia.gov/todayinenergy/detail.php?id=56660#13
- https://centreforaviation.com/analysis/reports/the-worlds-airports-the-state-of-the-industry-in-jan-2023-in-11-numbers-635413
- IBTTA. https://www.ibtta.org/sites/default/files/documents/MAF/2015_FactsInBrief_Final.pdf
- https://www.parliament.nsw.gov.au/lcdocs/inquiries/2792/Report No. 16 – Road Tolling Regimes.pdf
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