Head of Global Listed Infrastructure & Portfolio Manager, Maple-Brown Abbott
“Global infrastructure are really the physical assets which enable a society to operate. So essentially these are assets which provide essential services, so used by a large number of people on a regular basis. They are also assets with a very strong strategic position, so we like monopoly assets. We like duopoly assets. And thirdly, they are assets with very predictable stable cash flows. So the types of assets we're investing in are regulated businesses, like water, gas, and electricity, transportation infrastructure assets like toll roads and airports. Assets subject to long-term contracts like pipelines. From an investment perspective, we believe that infrastructure assets have certain attractive characteristics, and to us specifically the low cash flow volatility and natural inflation linkage. We also believe that those characteristics are important to investors. They need to be focused on throughout the investment process. So we only invest in the assets with the strongest combinations of those two characteristics - so a very narrow, pure definition of infrastructure.”
Why global infrastructure?
“The benefit of investing globally is really the greater opportunity set. And this provides several benefits. Firstly, we commonly see across our universe very similar assets being valued quite differently in different markets, and so that creates opportunities for active investors such as ourselves. Secondly, by utilizing a broader opportunity set, we are able to build a portfolio which are genuinely only our very best ideas. And thirdly, by that great opportunities set, we can build a portfolio with better diversification, so diversification across sectors, across regions and also across regulatory frameworks.”
Well-suited for income-seeking investors
“We believe that that's for two reasons as both the high dividend income but also the defensive nature or the stability of that income. So in terms of the dividend income, in recent years, central banks obviously been taking extraordinary measures, but not withstanding that, the average income of the sector as a whole has been between three and three and a half percent, which compares to global equities of around a two percent dividend income. So it continues to see more than a one percent differential relative to global equities. In addition, our analysis shows that that by adding listed infrastructure to a diversified portfolio can not only enhance the dividend income but can also reduce the volatility and limit the downside during periods of weakness. I think it is important for investors to recognize the need to focus on pure infrastructure assets in order to best extract those attractive characteristics.”
Importance of active management
“We believe active management is important for a couple of reasons. We often see the assets, very similar assets, being priced quite differently in different markets. So if you consider regulated assets for example. Regulated assets in North America are typically valued on a forward price to earnings multiple. In the United Kingdom though, they tend to be valued on a rate based multiple. And in Australia, they tend to be valued on a dividend yield and each of these valuation techniques certainly offers insights. But by focusing too much on any individual valuation methodology, we believe results in mis-pricings of individual securities, which are an active manager can take advantage of. The second key reason within our sector comes down to unfortunately there is no good infrastructure index.”