First Sentier Global Listed Infrastructure - October 2020 fund update

Josef Licsauer | Tue 06 October 2020

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• The fund invests in high quality companies that the managers believe are mispriced or undervalued
• The managers mainly invest in companies that own or run infrastructure assets
• We think it is a reasonable option for investing in some of the world’s most promising infrastructure companies
• This fund does not currently feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits into a portfolio

First Sentier Global Listed Infrastructure aims to deliver income and long term capital growth by investing in a portfolio of companies from around the world that run or own infrastructure assets. The managers invest mainly in large companies including utilities, transport, energy and communications providers but have the flexibility to invest in companies of any size.

They typically avoid investing directly in infrastructure assets and focus on infrastructure related companies which are listed on the stock market as shares are typically easier to buy and sell (more liquid) than physical assets. The fund tends to invest in relatively few companies. This means each one can have a significant impact on returns, but it increases risk.

The fund could add diversification and boost the long-term growth potential of a portfolio. However investing in specialist areas adds risk, so we think it should usually only form a small part of a well-diversified investment portfolio.

Manager

Lead manager Peter Meany was an analyst at Macquarie Group, involved in the development of the private infrastructure market. He later moved to Credit Suisse Equities (Australia) and became Director and Head of Infrastructure and Utilities Research. He joined First Sentier in January 2007, and established the First Sentier Global Listed Infrastructure fund.

Andrew Greenup co-founded the First Sentier Global Listed Infrastructure fund and works closely with Meany. His main areas of research are the toll roads and utilities sectors. Prior to joining First Sentier in 2005, Greenup was a senior equities analyst at Allianz Global Investors.

The managers have built a strong team of analysts with varying backgrounds to call on for support, ideas and challenge. They prefer to work with a smaller team that they can develop and mould over time, while ensuring each area they invest in has sufficient coverage.

Process

The managers invest in high quality companies that they think are mispriced. These companies tend to hold unique positions in their market, offer services that are important to the end customer, have a strong financial position and a tested management team.

They want to invest in mispriced and undervalued companies but not simply because they’re cheap. As part of their research process they evaluate a company’s liquidity, complexity and governance whilst assessing its value and quality against their 25 point ranking system.

The fund invests heavily in the US, with around 54% invested there, but it also invests in emerging markets, which adds risk.

The managers have taken advantage of recent market volatility by adding to existing investments at lower prices, finding new opportunities and selling companies that no longer fit their criteria.

New additions over the last six months include Spanish airport operator AENA, rail operator West Japan Railway and energy company IENOVA. The managers think each of these companies are attractively valued and their share prices have the potential to rise significantly when the world recovers from the coronavirus pandemic, although there are no guarantees.

The managers also increased their investments in toll roads. They provide a vital service to large parts of the economy and the managers think they have the potential to recover strongly from current levels as the volume of traffic increases post coronavirus. They also added to investments in the utilities sector, which they believe could hold up better than many other businesses, regardless of what's happening in the economy.

Investments in China Merchants Ports and COSCO Shipping Ports were sold due to concerns about global trade disruptions. US utilities holding Avangrid was also sold after it failed to meet the managers' earnings and performance targets.

Culture

First State Investments was recently acquired by Mitsubishi UFJ Trust and Banking Corporation and rebranded First Sentier Investors. The fund has been renamed First Sentier Global Listed Infrastructure but the managers retain the same investment approach.

The managers have helped to develop a strong culture since the fund was established and very much view their team as here for the long run. Meany feels strongly that First Sentier is a great place to build a career alongside experienced, level headed investors. Analysts are encouraged to get involved in other areas to help build their knowledge and add more value to the fund. The team has been relatively stable in recent years with only one analyst leaving, which we view positively. They're also incentivised in a way we feel aligns their interests with those of investors.

Environmental, Social and Governance (ESG) is culturally embedded across the company and has been integrated into the Global Listed Infrastructure fund's investment process since launch in 2007. There is also a dedicated responsible investment team that the managers can draw upon for additional support and challenge. The managers encourage the companies they invest with to report carbon targets and become more sustainable.

Cost

The standard annual ongoing charge for this fund is 0.79%, but we’ve negotiated a saving of 0.06%, so it’s available on the HL platform for an annual charge of 0.73%. The HL platform fee of up to 0.45% per annum also applies.

Performance

Over the past ten years the fund has slightly underperformed the FTSE Global Core Infrastructure 50/50 index, returning 169.5% compared to the index’s 176.8% gain*. Past performance is not a guide to future returns.

They are typically contrarian investors who focus on companies undergoing a turnaround or whose shares are available at a discount to their fundamental worth, otherwise known as value investing. This style of investing has been out of favour in recent times. Investment styles come in and out of favour though, so we think investors should have exposure to a range of different approaches in a well-diversified portfolio.

Over the 12 months to 31 August the fund has performed broadly in line with the index, despite the manager’s approach being out of favour. Some of the best performers over this period include energy provider Nextera Energy and cell tower operator Crown Castle Corporation. Nextera Energy has benefited from the stable use of gas and electric whereas Crown Castle Corporation performed well due to the rise in demand of online interconnectivity.

In contrast, transport operator Atlantia Spa and energy servicer Enterprise Products Partners have been some of the weaker performers. Atlantia Spa engages in the construction and operation of motorways and airports worldwide, specifically in Italy and France, and has suffered amid the international lockdown restrictions. Enterprise Products Partners has struggled to provide their energy services due to the disruptions to global supply chains caused by the coronavirus.

10 year performance against the index

Past performance isn't a guide to the future. Source: *Lipper IM 31/08/2020.

Past performance isn't a guide to the future. Source: Lipper IM 31/08/2020.

Find out more about First Sentier Global Listed Infrastructure including charges

First Sentier Global Listed Infrastructure Key Investor Information