September, 2023
Fund performance for the quarter ending September 2023 was -8.86% (net of fees) versus the benchmark return of +2.34%, as measured by the OECD G7 CPI Index plus 5.5% pa.
After a strong start to the quarter, equity markets faded during August and September as the prevailing global theme of “higher for longer” interest rates sunk in. This sentiment was reinforced by remarks from New York Fed President John Williams, who indicated that the central bank may have reached or is very close to peak interest rates but emphasised the need for a continued restrictive stance to combat inflation. Consequently, Treasury bonds experienced a sell-off, resulting in yields reaching 16-year highs, which in turn exerted ongoing pressure on the overall market.
Essential Infrastructure stocks across our universe were not immune to these developments and experienced an average decline of 9.3% throughout the quarter. Stocks in North America witnessed the poorest performance, falling by 10.3%, closely followed by stocks in the AsiaPacific region and Europe, which recorded declines of 10% and 9.4%, respectively. UK stocks fared somewhat better, with an average decline of 7.3%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2309-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfAugust, 2023
Fund performance for the month ending August 2023 was -2.56% (net of fees) versus the benchmark return of +0.78%, as measured by the OECD G7 CPI Index plus 5.5% pa.
Prospects of a ‘soft landing’ improved in August, and as a result expectations of higher-and-for-longer interest rates increased.
Consequently, Essential Infrastructure stocks lost favour due to their defensive qualities and also their longer duration, with market preference turning towards riskier, more cyclical assets.
During the month, Essential Infrastructure stocks, on average, experienced a 4.7% decline. The weakest performance was observed in the AsiaPacific region, where stocks fell by 7.0%. In the UK and North America, stocks also suffered, declining by 5.9% and 5.2%, respectively, while European stocks fared relatively better with an average drop of 3.3%.
Across the sectors within Essential Infrastructure, all experienced declines. Energy infrastructure showed the most resilience, with only a marginal decrease of 0.1%. This sector benefited from an improved commodity price backdrop and attractive dividend yields. Notably, TC Energy recorded a strong performance with a 3.3% increase in its stock value. We recently re-established our position in TC Energy, recognising its potential value after a period of underperformance, and the company’s high-quality, predominantly natural gas pipeline network. We maintain our confidence in this sector’s overall value proposition, particularly given its appealing yield support.
The weakest sectors overall were US and UK utilities, both experiencing declines of 6.0% and 5.9% respectively. Despite their current lack of favour due to their defensive characteristics, we maintain a positive longterm outlook for these sectors as we believe they will play a vital role in the energy transition.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2308-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfJuly, 2023
Fund performance for the month ending July 2023 was -0.33% (net of fees) versus the benchmark return of +0.78%, as measured by the OECD G7 CPI Index plus 5.5% pa.
Equity markets continued their strong run in July with several indices close to all-time highs. A resilient US economy combined with below expectation inflation led to an increased belief in a soft landing. This combined with expectations of an end to the rate hiking cycle drove markets.
Given the fading recession fears and continued “risk on” attitude, it was not surprising to see Essential Infrastructure lag the broader market.
Essential Infrastructure stocks on average rose by 0.5% in the month, with North America (+1.1%) being the strongest region. European stocks fell by 1.8% whilst the UK rose by 1.4%, stabilising after being hit hard recently on the back of the Thames Water debacle.
Sector-wise, energy infrastructure was the best performing sector, rising by 2.1%. Stocks in the US had been weak over the past few months, and dividend yields for several names were trading above 6% which looked too cheap in our view. Utilities in North America rose 1.3% in the month.
The sector has been volatile recently and July saw it bouncing from close to recent lows.
The mobile phone tower sector in the US, was the weakest sector. The sector fell 4.1% on the back of a report in the Wall Street Journal alleging that the telcos in the US had a huge potential liability to replace lead sheathed cables around the country. If true, this could impact the likes of AT&T and Verizon to invest in their mobile phone networks. However, the issue has since been downplayed by various sources and any potential liabilities look manageable. Fund names such as SBA Communications (-5.5%), Crown Castle (-5.0%) particularly suffered because of this. We view these concerns as overblown, and the impact on these companies should be minimal.
On the positive side energy infrastructure names Cheniere (+6.2%) and Williams (+5.6%) enjoyed strong performance. We continue to believe this sector offers a lot of value, especially given the attractive yield support.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2307-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfJune, 2023
Fund performance for the quarter ending June 2023 was -0.31% (net of fees) versus the benchmark return of +2.62%, as measured by the OECD G7 CPI Index plus 5.5% pa.
Equity markets were generally strong during the quarter, adopting a ‘riskon’ attitude as the expectation of a recession in the US abated. There was, however, significant divergence amongst stock and sector performances, with a handful of AI driven tech stocks fuelling the rally in the US market.
The lowering of recession expectations combined with sticky inflation also meant the market adopted the stance that interest rates are unlikely to come down in the near-term. This led to defensive and longer-dated assets, such as infrastructure to perform relatively poorly.
On average, Essential Infrastructure stocks fell 1.9% during the quarter (in local currency terms), with North America falling 3.6%. Utilities were the weakest sector, falling 3.4% as investors looked to increase risk in their portfolios and reduce defensive positions. Similarly, mobile phone towers in the US fell 9.4% in the quarter as investors were looking to reduce defensive positions and also longer-dated assets in the US.
Conversely, European stocks performed well this quarter, rising 2.6%, on average, with Transportation companies particularly strong, rising 4.8%.
Looking at individual companies, Williams was the strongest performer in the Fund, rising 10.9%, followed by Ørsted 10.5%. Ørsted, the global leader in offshore wind development, delivered a solid set of results and an upbeat investor day. European transport company, Ferrovial, Italian electricity transmission companies Terna and Getlink, and the Channel Tunnel operator, all rose over 5% in the quarter.
On the negative side, UK water company Pennon was the biggest faller in the Fund, down 18.6% in the quarter. Fellow UK water company Severn Trent also fell 8.8% as the UK water sector suffered from the news that privately owned Thames Water may need to seek financial help from the UK government. We view Thames as an isolated situation. The company has suffered from poor performance and high levels of debt for many years.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2306-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfMay, 2023
Fund performance for the month ending May 2023 was -4.06% (net of fees) versus the benchmark return of +0.96%, as measured by the OECD G7 CPI Index plus 5.5% pa. Global equity markets largely fell during May, reversing their strong start to the year. Concerns over the US debt ceiling made investors jittery, although a deal was reached shortly after month-end. Essential Infrastructure was not immune, falling by 4.2% on average (in local currency terms). All major regions and sectors ended the month in negative territory.
Looking at individual names, Spanish toll road company Ferrovial was the strongest performer during the month, rising 1.8%. The company reported strong results for 1Q23, driven by a re-acceleration in traffic. Fellow transport name Auckland Airport also rose during the month (+0.4%), as did our European renewable energy name, Orsted (+0.6%). On the negative side, US mobile phone tower companies SBA Communications and American Tower fell 14.7% and 9.8% respectively. Sentiment towards the sector remains negative as they are the most sensitive to changes in interest rate expectations. We anticipate that the mobile phone tower sector will perform strongly once it becomes evident that interest rate expectations have peaked, as fundamentals remain strong. Elsewhere, UK water utility Pennon fell 10.1% after the regulator OFWAT launched an enforcement notice relating to the accuracy of information reported by the company while US utility Ameren fell 8.9% despite there being no significant news.
File:April, 2023
Fund performance for the month ending April 2023 was +4.65% (net of fees) versus the benchmark return of +0.82%, as measured by the OECD G7 CPI Index plus 5.5% pa. Equity markets were generally positive during April, continuing their strong start to the year. Essential Infrastructure also had a strong month, rising by 1.8% on average (in local currency terms).
All major regions and sectors ended the month in positive territory, with US Mobile Phone Towers being the only exception, falling 2.4% in the month. This sector has suffered the most from rising interest rates over the past 18 months, and we see significant upside potential for the group. European infrastructure (+3.8%), and particularly European Transport (+7.3%), were the standout sectors for the month. Indeed, Transport names were strong around the world. The group delivered solid results and there were upgrades to expectations for the year on the back of strength in passenger numbers, in both airports and toll roads. Looking at individual names, Getlink was the strongest performer during the month, rising 11.7%. Fellow transport names such as ADP (+9.5%) and Vinci (+9.1%) also rose strongly during the month. Elsewhere European Mobile Phone Tower name, Cellnex, rose 6.7% during the month, continuing its recent run.
The company is expected to name their new CEO in the coming weeks, which should be well received by the market. On the negative side, Acciona Energia (-8.9%) fell the most during the month, as renewable energy related companies were generally weak. We have been reducing our position in this name over the preceding months and it now represents less than one percent of the Fund. US Energy Infrastructure company, Cheniere, was the next biggest faller in the month, dropping 2.9% in the month, despite there being no significant news.
File:March, 2023
Fund performance for the quarter ending March 2023 was +4.52% (net of fees) versus the benchmark return of +2.98%, as measured by the OECD G7 CPI Index plus 5.5% pa. Whilst inflation continued to ease over the quarter, central banks continued to increase interest rates, which in turn raised concerns around a recession in the US. Furthermore, the sudden collapse of Silicon Valley Bank led to heightened alarm over the health of the banking system and will likely lead to tighter credit conditions into the future. Despite these concerns, during March the equity market focused on the timing of the last rate hike by the Fed and the potential start of a rate-cutting cycle later in the year. Given this backdrop, equities performed well and Essential Infrastructure stocks were also buoyed. Within Essential Infrastructure, Mobile Phone Towers performed the strongest in March, rising 5.1% as a group. This was partly due to the softer outlook for interest rates but also due to further potential bid speculation within European companies, where valuations look very low in our view. Utilities, which are not only a beneficiary of lower expected interest rates but are also less likely to be affected by a recession, also performed well, rising 3.3% as a group during March. Energy infrastructure (-0.9%) was the only sector to fall during March. Turning to individual names, US utility and renewable giant NextEra was the biggest gainer in the Fund, rising 8.5% during the month. Several other utilities also performed strongly, with Terna +6.1%, and both Pennon and CenterPoint advancing 5.9%. On the negative side, the European Transport exposed names were the worst performers in the Fund, with Atlas Arteria the biggest faller during March at -5.1%. Getlink (-4.6%) and ADP (-4.2%) were also weak as European stocks generally softened after their strong start to the year.\
File:February, 2023
Fund performance for the month ending February 2023 was -0.16% (net of fees) versus the benchmark return of +0.91%, as measured by the OECD G7 CPI Index plus 5.5% pa. Global markets were weighed down in February by stronger economic data and inflation prints increasing interest rate expectations. Essential Infrastructure was not exempt from the market downturn, as longer duration stocks in the Fund were adversely affected by the possibility of higher inflation and interest rates that are likely to persist for an extended period compared to what the market previously expected. Among the Essential Infrastructure stocks, the Mobile Phone Tower companies are the most sensitive to changes in interest rate expectations and were the largest detractors to performance during the month. US mobile phone tower companies SBA Communications and American Tower fell 12.8% and 11.4% respectively, despite delivering financial results and guidance that met expectations. We anticipate that the mobile phone tower sector will outperform once it becomes evident that interest rate expectations have peaked. On the positive side, European airport operator AENA saw a rise of 6.5% as it reported traffic data that exceeded pre-pandemic levels for the first time and delivered better than expected results for the 2022 calendar year, yielding a higher-than-expected dividend. Elsewhere, US LNG export operator Cheniere experienced an increase of 3.2% after posting positive financial results for the year ending December 2022, making the stock eligible for inclusion in the S&P 500 index. Additionally, the company delivered better than expected financial guidance for 2023 and announced pre-filing an expansion of its facilities which would commence operations later in the decade.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2302-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfJanuary, 2023
Fund performance for January 2023 was +1.27% (net of fees) versus the benchmark return of +1.05%, as measured by the OECD G7 CPI Index plus 5.5% pa. After the sell-off in December, markets rebounded in January with the MSCI World Index up 7.1%.
Optimism over falling inflation and sharply lower commodity prices helped fuel the rebound. After a milder winter, natural gas prices in Europe have halved in the past three months, a similar amount to electricity prices. This has improved the economic outlook for Europe and reduced the risk of recession, thus driving European markets, in particular, higher. Infrastructure participated in the rally, but to a lesser extent given the relative outperformance seen in 2022 and also lower sensitivity to the overall economic cycle. All sectors of infrastructure were in positive territory in January, with Transportation the standout, rising 11.2%. Toll roads and airports benefitted from the improved outlook and airports in particular were helped by the reopening of China and the expected return of Chinese tourists throughout 2023. Mobile Phone Towers also performed strongly in the month, rising 7.7%.
This sector suffered the most in 2022, and is the most sensitive to interest rate movements. The peaking of interest rates over the coming months should be beneficial to this sector in particular. Utilities lagged in the month, although still delivering a positive return of 1.1% as a group. This reflects their low sensitivity to the cycle and also their strong relative performance in 2022. Looking at individual names, Spanish airport group AENA was the strongest performer, rising 17.2%.
Other European transport names performed strongly too, with ADP +13.6%, Vinci +11.1% and Ferrovial +10.5%. Spanish Mobile Phone Tower name Cellnex rose 16.0% partly on the back of rumoured M&A activity. On the negative side, US utility and renewable energy company NextEra fell 10.7%. The company delivered a strong set of results, but the unexpected departure of the CEO of the Florida utility subsidiary spooked the market. We think the fall looks overdone.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2301-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfDecember, 2022
Fund performance for the quarter ending December 2022 was +4.88% (net of fees) versus the benchmark return of +3.22%, as measured by the OECD G7 CPI Index plus 5.5% pa. After the rebound in October and November, markets initially continued to rise in December, before selling off in the second half of the month.
The main driver for the sell-off was a combination of hawkish updates from both the US Federal Reserve and the ECB. These extinguished hopes of early interest rate cuts in 2023 and the market sold off as a result. The Fed now expects to keep interest rates higher in 2023, with no cuts expected until 2024. Given the broad sell-off in equities during December, infrastructure was not immune. All major sectors and regions of Essential Infrastructure fell during the month. Energy Infrastructure led the decline, falling close to 6% on average, followed by Transportation Infrastructure at just under 5%. Both of these sectors fell due to increased concerns over a recession in 2023. Utilities (-2.2%) and the UK in particular (-1.8%) were areas of relative strength. Looking at individual names, recent addition to the Fund, Exelon, a US electricity and gas utility was the biggest gainer adding 4.5%, and rebounding well from recent lows that provided an excellent entry point.
Elsewhere, Ørsted, the global leader in offshore wind rose 1.7%. We continue to view renewable energy as an attractive secular growth trend, driven by the Inflation Reduction Act (IRA) in the US and also the repowering of Europe away from Russian gas towards renewables. We also note the potential passage of a Canadian carbon copy of the US IRA in the first half of 2023, which would underpin increased development of renewable energy in that country.
The biggest faller in the Fund was French airport group ADP, which fell 14.7%, closely followed by LNG terminal company Cheniere at 14.5%. Both of these companies fell on bearish economic sentiment for 2023. We continue to see good opportunities in both of these stocks. Cheniere is benefitting from multi-decade contracts that secure cashflow for many years to come, whilst ADP is seeing a strong traffic recovery, which is nearly back to pre-Covid levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2212-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU-1.pdfNovember, 2022
Fund performance for the month ending November 2022 was +3.47% (net of fees) versus the benchmark return of +1.06%, as measured by the OECD G7 CPI Index plus 5.5%. Markets continued to rebound in November, as inflation showed signs of easing around the world. This increased hopes that the Federal Reserve would slow the pace of interest rate hikes despite a continued hawkish stance by several voting members of the FOMC. This in turn led to weakening in the US dollar, and for the US yield curve to invert further. Employment in the US, a key metric for the Fed, remains stubbornly strong and needs to soften over the coming months for the Fed to change its hawkish stance.
During the month, infrastructure was buoyed by the positive sentiment and performed well across all major sectors and regions. Longer-dated assets such as Communications (+9%) and Utilities (5.6%) performed strongly. Utilities in the UK rose 9% on the back of a relief rally and a fiscally prudent mini-budget that was an almost complete U-turn from the Liz Truss/Kwasi Kwarteng budget just 2-months prior. Looking at individual names, German company Vantage Towers was the best performer (+15%) in the month, rising strongly on the back of a takeover bid. This confirms our view that mobile-phone tower companies are trading at a steep discount to where the private market sees valuations. SBA Communications in the US, another mobile-phone tower operator, also performed strongly, rising 11%. There was also a healthy group of utilities that all rose around 10% in the month. Names like Terna in Italy, Sempra, NextEra, Ameren and Centerpoint, all in the US, reflected broad strength across the sector. On the negative side, renewable energy company Acciona Energia fell 5% after a very strong recent run. Strangely, in our view, Spanish mobilephone tower company Cellnex fell 1% despite the positive sentiment to these assets and also the company announcing a very disciplined pivot away from acquisitions and towards increasing balance street strength. We see this as a positive move and we continue to like the name.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2211-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfOctober, 2022
Fund performance for the month ending October 2022 was +5.56% (net of fees) versus the benchmark return of +1.09%, as measured by the OECD G7 CPI Index plus 5.5%. Markets rebounded strongly in October on the back of a positive start to the earnings season, against relatively low expectations and depressed market sentiment. All eyes remain focused on the actions of central banks globally, as the market looks for signposts that the current pace of tightening could slow.
Globally, the war in Ukraine continues, with the team monitoring the broader implications for the fund. We also saw the end of Liz Truss’ tenure as Prime Minister in the UK (just 44 days in office) after her plan to debt-fund tax cuts sent financial markets and the sterling into a steep decline, and UK bonds on to a post-financial crisis high before the plan was pulled. Rishi Sunak was elected as Prime Minister by conservative MPs and his first task is to try and steady the party, the economy and the markets.
During October, all sectors and regions of infrastructure were positive with the Energy and Transportation sectors leading the group. Energy infrastructure companies Williams (+14%) and Cheniere (+6%) were up strongly while European airport operators ADP and AENA were up 15% and 11% in local currency, respectively. The main detractors in the period were the larger cap, long duration equity holdings as small cap and value factors led the way. US mobile phone tower companies SBA Communications (-5%) and American Tower (-3%) along with US utility NextEra Energy (-1%) all traded lower in the period. These three companies are all high quality with a strong secular growth tailwind and remain core positions in the fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2210-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfSeptember, 2022
Fund performance for the quarter ending September 2022 was -4.10% (net of fees) versus the benchmark return of +3.26%, as measured by the OECD G7 CPI Index plus 5.5%. Markets sank in September on the back of a combination of events around the world. Inflation remains stubbornly high and the Federal Reserve reiterated its hawkish stance to the disappointment of the market.
The Fed raised interest rates by 75bps in September and other central banks followed suit - the Bank of England raised by 50bps and the ECB raised by 75bps. However, future inflation expectations reduced as markets assumed an increased probability of recession around the world. To make matters worse in the UK, the new Chancellor of the Exchequer sent markets into a spin and the sterling to an all-time low after announcing a fiscal package that was poorly received. This wave of negative sentiment affected all equity markets, and infrastructure was not immune from the fallout. We have seen this scenario several times in the past, and what we have experienced is that infrastructure tends to recover quicker than broader equities from kneejerk sell-offs.
This is primarily due to investors ultimately recognising the resilience of cash flows and profits of infrastructure companies. Whether this happens this time round remains to be seen, but we remain confident in the high-quality defensive companies we have in the Fund. During September, although all sectors and regions of infrastructure fell sharply, it was the more interest-sensitive sectors such as utilities and mobile phone tower companies that suffered the most. Spanish tower company Cellnex was the biggest faller in the Fund, tumbling 18%, with Belgian electricity transmission company, Elia falling 17% and offshore wind leader Ørsted down 16%. UK names such as water companies Pennon and Severn Trent both fell over 15% during the month as investors gave a big thumbs down to the government’s new fiscal package.
On the positive side for the month, US LNG export name Cheniere continued its strong run. The company raised guidance for the year by 12%, increased its dividend by 20%, increased its buyback plan from $1bn to $5bn and lowered its long-term leverage target. Despite this combination of positive news, the share price only managed to climb 3% during September. Elsewhere, German mobile phone tower company Vantage Towers rose over 2% as rumours swirled of Private Equity players eyeing a stake. This is not a surprise, in our view, given that listed European tower companies are trading on around half the multiples that similar assets have recently traded at in the private market
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2209-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfAugust, 2022
Fund performance for the month ending August 2022 was -2.16% (net of fees) versus the benchmark return of +1.15%, as measured by the OECD G7 CPI Index plus 5.5%. The global equity market roller coaster ride continued in August, with a reversal of the strong recovery made in July. In his much-anticipated annual policy speech at Jackson Hole, US Federal Reserve Chair Jerome Powell affirmed the need to continue fighting inflation. Expectations for a pause and reversal in interest rate hikes are now very much diminished until inflation moves down closer to the Fed’s 2% long-range goal. The Fed’s hawkish tone at Jackson Hole caught bond and equity markets off guard, and the longer duration sectors within listed infrastructure were negatively impacted. Markets were also impacted in August by continuing European energy supply woes, with Russia limiting supplies and concerns around storage levels heading into the northern hemisphere winter driving prices higher.
At month end, it appears that the European Union is preparing to intervene in order to bring some relief to the soaring power costs for consumers. Essential Infrastructure exhibited its defensive characteristics during the month, falling far less than global equities. On the positive side, US LNG export operator Cheniere Energy was the best performer, rising over 9% as it provided a positive update to full-year guidance and submitted a regulatory filing for an expansion project at its Corpus Christi liquefaction facility.
Renewable names Ormat and NextEra also rose during the month on the back of the US Inflation Reduction Act being passed, which has positive implications for clean energy companies. On the negative side, European offshore wind operator Ørsted was the weakest name in the portfolio falling over 13% after a poorly received quarterly update. We continue to view the company positively over the long term and we added to the holding on weakness. Additionally, European mobile phone tower companies Cellnex and Vantage both fell over 10% during the month on higher interest rates and recession concerns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2208-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfJuly, 2022
Fund performance for the month ending July 2022 was +5.32% (net of fees) versus the benchmark return of +1.03%, as measured by the OECD G7 CPI Index plus 5.5%. After the savage drawdown in global equity markets in June, equity markets staged a strong recovery in July. Bond yields declined rapidly following their meteoric rise in the preceding period as bond markets seemingly started pricing in an increased chance of a recession with the yield curve inversion steepening across most markets. Essential Infrastructure also performed strongly during July. The moves in bond yields in July together with continued high inflation prints in developed markets, provided a solid back drop for the asset class. Over the course of 2022, Essential Infrastructure has displayed its defensive characteristics and low downside capture but, in case of July, its ability to also capture upside when equity markets rise.
During the month, mobile tower company Cellnex Telecom rose 18% after the company revealed it had withdrawn from the bidding to acquire Deutsche Telecom’s tower assets in Germany and Austria. Given the structure of the proposed transaction, we viewed Cellnex’s withdrawal positively demonstrating its disciplined approach to M&A – and the equity market appeared to take a similar view!
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2207-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfJune, 2022
Portfolio performance for the quarter ending June 2022 was -0.32% (net of fees) versus the benchmark return of +3.12%, as measured by the OECD G7 CPI Index plus 5.5%.
The decline in global equity markets continued in June, as seemingly all roads lead to recession. Views oscillated from concerns over raising rates causing a recession to not raising rates leading to potential runaway inflation and further rate rises, thus also potentially leading to a recession. The echo chamber of panicked market participants reached fever pitch, and equity markets moved with the prevailing negative sentiment. Given the weight of this negativity, Essential Infrastructure also fell during the month. However, it was able to once again exhibit its defensive characteristics, falling significantly less than global equities. Indeed, the outperformance of Essential Infrastructure to global equities so far this year is significant, even despite a backdrop of rising interest rates. One of the traditional misconceptions of infrastructure is that it performs poorly in a rising rate environment. The historical evidence suggests the opposite, and the first half of this year has been another significant data point to help disprove this simplistic theory.
On the positive side for the month, toll road operator Atlas Arteria was the best performer, rising over 12% as serial infrastructure predator IFM built a stake of just under 15% of the company. The management of Atlas Arteria are refusing to open the books to IFM unless they make a bid. IFM for their part have said they need to look at the books in order to make a bid, so we are currently in an infrastructure version of a Mexican stand-off (hopefully taking place on a toll road somewhere). Who says infrastructure isn’t exciting!
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2206-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfMay, 2022
Fund performance for the month ending May 2022 was +0.71% (net of fees) versus the benchmark return of +1.08%, as measured by the OECD G7 CPI Index plus 5.5%.
During May, markets continued to be mired in a myriad of uncertainties. The situation in Ukraine, inflation, interest rate rises, Covid related lockdowns in China and supply-chain disruptions created a long menu of daily concerns for market participants. Despite this backdrop, Essential Infrastructure continued to largely deliver in line with expectations and grind higher, demonstrating the key characteristics of the asset class – secure, long-term streams of cashflow, inflation protection and secular growth opportunities.
On the positive side, North America was the strongest region, rising over 4% as a group, with Energy Infrastructure and Utilities particularly strong. Ormat, a global leader in geothermal energy, Williams, a US natural gas pipeline company, and US utility name NiSource all rose over 8% during the month. In addition, renewable energy behemoth NextEra rebounded over 7% from recent lows.
On the negative side, the UK was the weakest region of Essential Infrastructure falling close to 7%. UK water name Pennon was the weakest performer in the portfolio, falling 10%, with fellow water name Severn Trent falling over 7%. Concerns over cost-base inflation drove these falls, which we believe are an overreaction by the market given the inflation protection these companies enjoy, via their regulation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2205-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfApril, 2022
Fund performance for the month ending April 2022 was +1.39% (net of fees) versus the benchmark return of +0.97%, as measured by the OECD G7 CPI Index plus 5.5%.
The Fund performed well during April with all sectors showing positive returns. This followed on from a solid first quarter of 2022 with the Fund continuing to deliver strong downside protection versus broader equity indices during a volatile period.
This period of strong outperformance versus global equities has occurred during a period of rising interest rates, defying a commonly held view that rising interest rates play to the ‘bond proxy’ characteristics of infrastructure, creating a significant headwind. Invariably, infrastructure’s relationship with inflation is more complicated and more positive, with the context around why interest rates are rising the critical factor. Generally, because of the structural regulated and contracted pricing models across the sector, rising inflation leads to higher revenues and cash flows especially in the short to medium term. In the current situation, sharply rising inflation and, to some extent, concerns over a slowing global economy, is providing a macro ‘sweet spot’ for the asset class to perform well. Some 96% of Ausbil’s Essential Infrastructure Fund offers significant pass-through benefits in a rising inflationary environment such that revenues and earnings rise in these conditions. This helps to offset some of the impacts on long-term discount rates applied to value the sector.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2204-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfMarch, 2022
Fund performance for the quarter ending March 2022 was +0.10% net of fees versus the benchmark return of +2.77%, as measured by the OECD G7 CPI Index plus 5.5%. The first quarter of 2022 was a tumultuous and volatile month for markets. Earlier in the quarter, the focus was on rising inflation expectations and potential implications for interest rates. But this was overshadowed by the Russian invasion of Ukraine and its broader implications. Essential infrastructure was directly and indirectly impacted by these events. Pleasingly the asset class and Fund has delivered strong downside protection versus broader global equity indices during this volatile period. On the negative side, the likelihood of higher inflation leading to higher interest rates impacted some of the longer-duration stocks in the Fund particularly earlier in the quarter. Cellnex Telecom was the stock that fell the most during the quarter, falling close to 15%. This was followed by American Tower at -14% and Ferrovial -12%.
On the positive side, it was energy infrastructure companies that performed most strongly on the back of significantly higher commodity prices. US LNG exporters, namely Cheniere Energy and Sempra, rose strongly, 37% and 28% respectively, as Europe sought to implement strategies to reduce its reliance on Russian imported gas with greater imported gas from the US. Similarly, Elia Group, owner of transmission grids in Belgium and Germany rose 19%, as Europe’s desire to further accelerate the investment in renewable energy is expected to support Elia’s growth prospects for grid investment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2203-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfFebruary, 2022
Fund performance for the month ending February 2022 was -0.16% (net of fees) versus the benchmark return of +0.85%, as measured by the OECD G7 CPI Index plus 5.5%.
February was a tumultuous month for markets. Undoubtedly, the Russian invasion of Ukraine overshadowed all other events, and the knock-on effects for commodity prices, inflation and potential interest rate hikes sent ripples through global markets that will continue to reverberate for a while yet. For clarity, the Fund does not, and has never owned any company listed in either Russia or Ukraine, and there are no companies from either country included in our investable universe.
There are many ramifications of the Russian invasion, not least with the devastation and destruction wrought on the Ukrainian people. With respect to Essential Infrastructure, there are likely to be some positives, as well as negatives, partially reflected in stock performance for the month. On the positive side, renewable energy stocks in Europe jumped on the likelihood that there will be increased investment in renewable energy so that Europe can wean itself off Russian gas. Offshore wind company Ørsted spiked 23% in the month from recent lows, and Spanish renewable name Acciona Energia jumped 11% as well. Electricity transmission grid companies in Europe such as Elia and Terna also performed well during the month as grid investment needs to go hand-in-hand with investment in renewables.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2202-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfJanuary, 2022
Portfolio performance for the month ending January 2022 was -2.88% (net of fees) versus the benchmark return of +0.92%, as measured by the OECD G7 CPI Index plus 5.5%. Anticipation of faster than previously expected US interest rate hikes to control inflation saw bond yields spike in January. This had a knock-on impact to equity markets and particularly hit those sectors with long-dated cashflows, such as renewable energy companies and mobile phone towers. To compound this, there was also a sell-off in high quality companies, as value investing held sway. Furthermore, escalating tensions between the US and Russia over Ukraine only added to the market turmoil.
During the month, mobile phone towers suffered the most, falling 14% in both the US and Europe. Spanish company Cellnex was the largest detractor in the portfolio at -21% for the month, and is trading significantly below our valuation, even with a rising interest rate cycle factored in. Similarly, SBA Communications in the US fell 16% during the month, despite positive results from one of its peers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2201-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfDecember, 2021
Fund performance for the quarter ending December 2021 was +6.21% net of fees, versus the benchmark return of +2.51% as measured by the OECD G7 CPI Index plus 5.5%.
December kicked off with concerns over the latest COVID-19 variant, Omicron. However, despite the initial worst-case fears, concerns were alleviated to a certain degree after preliminary observations that this variant was relatively mild compared to previous ones. As a result, the threat of a new round of restrictions and lockdowns was assuaged during the month. This relief allowed investors to focus on fundamentals for 2022 and as a result markets rallied around the world, after falling in November. That said, the Fed’s about-turn with regard to inflation being more persistent than transitory did send a shockwave through the market and led market observers to fear that the Fed is behind the curve and interest rates may have to rise faster than previously expected. This will undoubtedly play out over coming months.
During the quarter, all major sectors contributed positively to the fund with Utilities (+11%) and Communications infrastructure (+7%) leading the way. National Grid in the UK was the standout performer during the quarter rising 21%, with other utilities such as NextEra in the US and Terna, which owns and operates the electricity transmission grid in Italy, both rising over 15%. National Grid is in the process of transitioning to a portfolio of electricity assets and positioning itself as an Energy Transition company, and this strategy was well received by the market
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2112-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfNovember, 2021
Fund performance for the month ending November 2021 was +2.17% (net of fees) versus the benchmark return of +0.88%, as measured by the OECD G7 CPI Index plus 5.5%.
The main driver of global markets during the month was the emergence of the latest COVID strain of concern, Omicron. Omicron emerged towards the end of the month and took most equity indices into negative territory, reversing gains from earlier in the month. In addition to this was a surprise pivot by the US Fed to a more hawkish stance, leading markets to expect Interest rate rises earlier than previously expected.
Given this backdrop, and especially with respect to Omicron, Transportation was the weakest sector of Essential Infrastructure in November. Individual names such as Groupe ADP (owner of Charles de Gaulle Airport amongst others), Ferrovial, Vinci and Spanish Airport group AENA all fell close to 10% during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2111-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfOctober, 2021
Fund performance for the month ending October 2021 was -0.71% (net of fees) versus the benchmark return of +0.75%, as measured by the OECD G7 CPI Index plus 5.5%.
The global backdrop during October was accommodative for Essential Infrastructure. Inflation expectations continue to be the biggest concern for the market at the moment, combined-with the knock-on impact on interest rates. However, this has been well-flagged, and we continue to expect transient rises in inflation over the coming months.
During October, the performance across regions and sub-sectors of Essential Infrastructure was mixed. North American Energy Infrastructure was the strongest sector for the month, rising around 6% as a group as the energy complex in general rebounded on the back of stronger commodity prices. Our European and UK utility holdings also compounded on their strong run from last quarter, rising 6% and 5% as a group, respectively.
On the negative side, transportation stocks in Europe and Australia paired back recent gains. Spanish airport group AENA fell close to 5% during the month after its regulator approved the company’s Airport Regulation Document for 2022-26, but with a slightly lower tariff adjustment than the company and market anticipated. Australian toll road company Transurban also fell around 5% after successfully completing its takeover of WestConnex during the month. With the lifting of COVID-lockdowns in the states of NSW and Victoria in October, we should see an immediate benefit to traffic across Transurban’s toll road network.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2110-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report_AAP3254AU.pdfSeptember, 2021
Fund performance for the quarter ending September 2021 was +5.37% (net of fees) versus the benchmark return of +2.32%, as measured by the OECD G7 CPI Index plus 5.5%.
This market continues to be exciting and with inflation pointing higher, everything seems to be more expensive today than a year ago… including some much-loved listed infrastructure companies listed in Australia. This past quarter we saw a flurry of M&A activity with bids for AusNet Services, Spark Infrastructure and Sydney Airport despite the huge challenges facing the locked-down economy. While we don’t speculate on whether or not a company could become a takeover target, these transactions highlight the demand by private investors for high-quality essential infrastructure assets and the big premiums they are willing to pay to attain them. During the quarter, all sectors positively contributed to performance but the COVID-reopening sectors were the outperformers with Energy infrastructure rising +9.2% and Transportation infrastructure up +8.4% during the quarter. Cheniere Energy continues to move from strength to strength, advancing +17% higher in the period as the recent global gas price spike has put renewed focus on secured, large-scale capacity as the company’s new LNG export terminals come online. Sydney Airport rose over +42% in the quarter following the takeover bid from private infrastructure investors, and as countries continue to increase the visibility for borders to re-open once again. Both Communications and Utilities traded higher in the period, up +4.7% and +4.2% respectively with the longer-term secular drivers of 5G rollout and energy transition lifting the sectors higher.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2109-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report-1.pdfAugust, 2021
Fund performance for the month ending August 2021 was +2.71% (net of fees) versus the benchmark return of +0.81%, as measured by the OECD G7 CPI Index plus 5.5%.
The Fund performed well in August. Markets in general rose on the back of supportive comments from Jerome Powell at the Jackson Hole symposium. The COVID-19 delta variant continues to be a significant concern, but it is encouraging to see that most large European countries have now vaccinated around 70% of their population.
Most sectors and regions were up for the month. Mobile phone towers continued their recent strength rising around 4% as a group. This is a long-term secular growth sector given the transition to 5G, internetof-things and an increasingly mobile economy. Holdings such as Inwit, Cellnex and SBA Communications all rose around 5.5% during the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2108-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfJuly, 2021
Fund performance for the month ending July 2021 was +5.37% (net of fees) versus the benchmark return of +0.75%, as measured by the OECD G7 CPI Index plus 5.5%. The Fund rose strongly in July, building on a recent solid period of performance. While macro-economic indicators buoyed equity markets, bond yields continued to drift lower as markets were increasingly concerned with the rapid spread of the delta variant of COVID in many countries. Concerns over inflationary pressures seemed to take a back seat. This provided an accommodative backdrop for Essential Infrastructure.
Utilities, mobile phone towers and transport infrastructure all rose, with energy infrastructure the only sector down. M&A was again a feature of the month with Sydney Airport receiving a non-binding offer by a consortium led by IFM at $8.25/share (now upgraded to $8.45 a share), with the shares initially rising 35% as a result. The proposed transaction, though currently rejected by Sydney Airport, underscores the significant value arbitrage that exists. Sydney Airport was the strongest contributor to performance for the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2107-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfJune, 2021
Fund performance for the quarter ending June 2021 was +6.54% (net of fees) versus the benchmark return of +2.04%, as measured by the OECD G7 CPI Index plus 5.5%. We thought the first three months of 2021 were extremely eventful but the second may have eclipsed that! The infrastructure asset class bounced back strongly in the second quarter of 2021 after a difficult prior quarter. The rapid rise in bond yields globally in the first quarter of 2021 stabilised in the second quarter – in fact, the yield on 10-year US Government bonds reached its highest on 31 March of 1.74%. Since then yields have stabilised and more recently drifted lower. Together with supportive macro-economic data in key markets, this provided an accommodative set of conditions for the infrastructure asset class to perform.
We tip our infrastructure hats to our internal Ausbil Chief Economist who had astutely forecast such macro-economic conditions and, in anticipation, we subsequently positioned to benefit, adding further duration to the Portfolio in the form of mobile towers
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2106-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfMay, 2021
Fund performance for the month ending May 2021 was +0.93% (net of fees) versus the benchmark return of +0.70%, as measured by the OECD G7 CPI Index plus 5.5%. May continued the supportive environment seen in April. Bond yields remained stable, economic activity continued to rebound in the developed markets and the vaccine rollout gathered pace. The two biggest issues at the moment are new strains of the virus hampering re-opening efforts and some inflation concerns. However, the market appears to have become more sanguine about the persistence of inflation over the past few weeks.
May was a mixed month for Essential Infrastructure performance. Europe and the UK performed well, with French Airport group Aéroports de Paris rising over 6% on the back of easing travel restrictions, which we expect to be a feature of future months as vaccinations increase. Cellnex, a consolidator in the nascent European mobile phone tower sector rose over 4% over the month, as both consolidation and 5G rollout gather pace. In North America, there was a bifurcation between sectors. Energy infrastructure rose by over 3% as a group, with LNG export terminal operator Cheniere, being the top performer in the fund, rising by over 9% in the month. Gas transmission company Williams, also continued its strong run, gaining a further 8%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2105-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfApril, 2021
Fund performance for the month ending April 2021 was +2.98% (net of fees) versus the benchmark return of +0.60%, as measured by the OECD G7 CPI Index plus 5.5%. The global backdrop during April was a solid one for Essential Infrastructure. US bond yields settled down after their recent sharp rise, and the vaccine rollout has gained momentum, particularly in Europe. Inflation expectations seem to be the biggest concern for the market at the moment, combined-with the potential for a knock-on impact on interest rates, though this is not the house view. Ausbil does not expect inflation to threaten interest rates for some years. Transient rises in inflation are expected over the coming months.
During April, most sub-sectors of Essential Infrastructure achieved positive returns. North American communications (mobile-phone towers) were the strongest sector for the month as they continue their rebound from the lows seen in March. SBA Communications rose +8% during the month and American Tower rose +7%.
Similarly, our UK names rose strongly from recent lows, rising +6% as a group. UK water utility, Severn Trent, was the biggest gainer of the group, rising over +7% during the month. Despite a successful vaccine rollout and a reduction in post-Brexit border issues, the UK remains a cheap market in our view
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2104-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfJanuary, 2021
Fund performance for the month ending January 2021 was -1.47% (net of fees) versus the benchmark return of +0.48%, as measured by the OECD G7 CPI Index plus 5.5%. January was a busy month for news flow, kicking off with the Democrats securing a slim majority in the US Senate. This victory increases the likelihood of a new round of fiscal stimulus and also improves the prospects for Biden’s green initiatives, such as making the electricity generation sector carbon free by 2035. This is a really exciting prospect from the point of view of our US utility holdings, and anything related to renewable energy.
This energy transition is already taking place around the world as renewable energy is now cheaper than fossil fuel generation in many instances. As an example, January saw Spain generate 52% of its electricity from renewable sources, with a target of 74% of all energy by 2030. On the back of this energy transition, Ormat, a global leader in geothermal energy, rose +26% during the month. Geothermal power generation is a niche, but interesting technology as it does not create greenhouse gases and is also available 24/7 unlike intermittent wind and solar. Elsewhere, some of our regulated or contracted pipelines rose by +5 to +6% during the month on the back of continued compliance by OPEC+ members. Canadian pipeline company, Pembina, was the standout performer, rising over 12%. Concern over the speed of the COVID-19 vaccine rollout, combined with rising infection rates and some worry over the efficacy against emerging strains has impacted our Transportation names, in particular. Companies such as Ferrovial, Sydney Airport, Aena, Aéroports de Paris and Getlink all declined by over -10% in January. The prospects for a resumption in international air traffic should improve over the next few months as the vaccine is rolled out and, hopefully, infections start to fall. Our long-term modelling shows that these names are looking very cheap, but clearly their share prices in the short term are susceptible to news flow sentiment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2101-Ausbil-Global-Essential-Infrastructure-Fund-Product-Report.pdfasset_class: Property and Infrastructure
asset_category: Global Listed Infrastructure
peer_benchmark: Property - Global Listed Infrastructure Index
broad_market_index: Global Infrastructure Index
manager_contact_details: Array
ticker: AAP3254AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.ausbil.com.au/products/global-equities/ausbil-global-essential-infrastructure-fund-unhe
Report
Monthly Performance Report
fund_features:
Ausbil Global Essential Infrastructure Wholesale aims to achieve returns (before fees and taxes) in excess of the OECD G7 CPI Index +5.5% pa over the long term. The Fund predominantly invests in listed global infrastructure securities in developed markets, with up to 10% in emerging markets while hedging the Fund’s currency exposure back to Australian Dollars. The Fund is designed for investors with at least a five year investment time horizon, who wish to benefit from the long term capital gains available from global listed infrastructure investments and who are comfortable with fluctuations in capital value in the short to medium term. The investment strategy uses both qualitative and quantitative analysis and tools, alongside a disciplined risk management process, with the aim of producing consistent and risk controlled outperformance.
structure: Managed Fund