What Singapore investors need to know about the First State Global Listed Infrastructure

Capital growth and inflation-protected income in one.

The First State Global Listed Infrastructure aims to provide investors with a combination of capital growth and inflation-protected income. This is done through investing all or substantially all of the Fund’s assets in the England and Wales domiciled First State Global Listed Infrastructure Fund (the “underlying fund”) which invests in a globally diversified, actively managed portfolio of infrastructure securities.

Singapore Business Review interviewed Peter Meany, head of global listed infrastructure at First State Investments to learn more.

SBR: Please tell us more about the product.

Infrastructure describes the physical assets that provide essential services to society. The main areas of infrastructure we invest in are toll roads, airports, ports, rail, water, gas and electric utilities, energy pipelines and storage, and communication towers.

The underlying fund is managed by a team of experienced specialists with complementary backgrounds within the infrastructure sphere. Stock coverage is split by sector in order to take advantage of each team member’s area of expertise, and to enable us to identify global best practice.

We believe our specialist knowledge of infrastructure assets and disciplined investment process will identify mispricing and continue to deliver consistent outperformance. The team is currently responsible for over US$2 billion in funds under management.


SBR: What is significant / unique about this product?

The following combination of factors sets the Fund apart from its competitors:

The specialised team is focused solely on investing in listed infrastructure. Team members have complementary skills and experience in both infrastructure and equity markets. This experience is enhanced by conducting over 500 company visits each year.

We identify infrastructure assets which exhibit barriers to entry, structural growth and pricing power. Our quality criteria then extend beyond the assets themselves to consider key stock issues such as management alignment, board independence, gearing levels, political interference and sustainability.

We are active managers of our clients’ capital. We take a long-term perspective in order to distinguish between genuine mispricing and short-term market sentiment, and construct high conviction portfolios based on proprietary research with sensible macroeconomic overlays. We conduct thorough due diligence backed by direct contact with companies and regulators.

SBR: Why should investors consider investing in it?

The listed infrastructure sector has a number of unique investment characteristics which appeal to a broad range of investors.

Because of the fundamental importance of the functions they carry out, infrastructure assets have a sustainable growth profile which is relatively immune to economic cycles. In fact, many infrastructure assets have delivered growth well above nominal GDP over a number of decades.

In most cases, infrastructure assets are government legislated or natural monopoly providers of certain essential services, giving them high barriers to entry. Electricity and gas distribution networks, toll road concessions with non-compete clauses or city airports with restricted flight paths are examples of this.

Infrastructure companies often enjoy considerable pricing power. They tend to have the ability to consistently increase the price of their services over time. This can be due to several factors including tolls linked to inflation, real regulated returns and assets with high barriers to entry making competition difficult and limiting customer choice.

Infrastructure assets also have an ability to generate cash flows which are highly predictable. This predictability is underpinned by infrastructure’s essential service nature, regulated returns, long-term contracts, limited cyclicality and lack of commodity price exposure.

SBR: Anything you'd like to add?

We view this as a particularly interesting time for infrastructure investment. In addition to the sector’s defensive fundamentals, several long-term structural drivers are currently generating growth within specific infrastructure-related sectors.

For example, road networks around the world have not managed to keep up with levels of motor vehicle usage over recent years, leading to urban congestion, which benefits railways and toll roads. Mobile tower companies’ contracted revenue streams are growing in line with increased customer demand for data and video services, as smart phones and tablets grow in popularity and sophistication.

An increasing focus on the security of energy supplies continues to create large-scale investment opportunities in oil and gas pipelines and storage. Globalisation is also driving volume growth for infrastructure assets such as airports, railways and ports. This structural pressure is creating exciting opportunities for investment.

We have recently received strong demand from investors searching for an alternative to the traditional asset classes. In some cases people are still cautious, given the stock market volatility seen in recent years.

However, in the current low interest rate environment, the need to move out of low yielding bonds into equities is increasingly recognised. Listed infrastructure, with its combination of inflation protected income and steady capital growth, offers a way of bridging the gap between bonds and equities.