Listed infrastructure investments are likely to rebound rapidly from any post-COVID-19 market recovery, with many suffering no impact at all and continuing to generate income for investors even during the lowest points of 2020, according to a boutique Australian fund manager.
4D Infrastructure chief investment officer and global portfolio manager Sarah Shaw said listed infrastructure had played its part as a defensive asset when markets declined in early to mid-2020, but had significant growth ahead due to a number of overlapping themes.
“The opportunity lies in the fact that infrastructure is hard to replace, but in many countries needs to be replaced or upgraded, alongside a global increase in population, including the middle class in developing and emerging markets, and a greater focus on environmental and climate-related issues,” Shaw explained.
“These are thematics that offer growth while being defensive and COVID-19 has not changed those, but rather enhanced the opportunity set available to investors.”
She pointed out these macro themes combined with low interest rates had created a perfect storm for infrastructure companies, which were able to borrow larger amounts at lower rates and could embark on more projects.
The fund manager invested in two categories of assets – regulated utilities and user-pays assets – as the former offered ongoing returns during downturns and the latter tapped into consumer demand during rising markets, and this benefited 4D Infrastructure during the past year, she added.
This was evident in the difference between market performance and earnings, according to Shaw, who pointed out that while the MSCI World Index had recovered from its March low point by the end of the year, and was up 5.8 per cent at year end, 4D’s investment universe was down around 12 per cent. Conversely, however, earnings for the MSCI had contracted by nearly 20 per cent over that same period, while infrastructure earnings remained flat.
“That is a net gain for listed infrastructure and it is an equity investment, so was slammed by the indiscriminate sell-off in March 2020, but because of the underlying defensive assets, earnings remained strong,” she said.
“Regulated utilities are immune to investment cycles and our investment guidance for that sector remained unchanged last year because there is a regulated return on investment, and the need for these assets will remain high because there is a limit on how quickly they can be replaced,” she continued.
“User-pays assets, such as toll roads and airports, which are tied to cycles, will also rebound in any recovery as they will be exposed to the pent-up demand for travel and anything that was pushed down is already geared to bounce back.”''