SQM Research has released the 2017 Global Infrastructure Securities Fund Review. Six infrastructure funds participated in the sector review taking into account some key factors including management, corporate governance, process, fees and returns.
SQM Research awarded between 4-stars and 4.25-stars; a reflection of the high calibre of investment management teams, with track records in infrastructure assets and robust investment processes.
The Funds under review had a raft of financial market hurdles to manoeuvre through, including the US election, rising US yields and constant geopolitical risks. Inflationary and US dollar trends provided for much debate as did elections in various European countries.
For the period under review, all the funds had a high allocation to utilities, due to macroeconomic views and as a beta play. All the managers are long-term investors, with well-defined buy-sell disciplines and low portfolio turnover. Most of the funds are concentrated, and for the period under review held between 29 and 35 stocks. Redpoint Global Infrastructure Fund held the highest number of stocks, with 126 holdings as at 31st March 2016
Global Infrastructure indices performed positively in recent times with a host of indices providing strong gains. The FTSE Global Core Infrastructure 50/50 returned 10.8% p.a. on 5 years to Jun-2017 basis. Similarly, the FTSE Developed Core Infrastructure 50/50 returned 11.6%p.a. on a 5-year basis. In terms of AUD, the S&P/ASX Infrastructure Index provided 14.40%p.a on a 5year annualised basis. The S&P Global Infrastructure (USD) Hedged Index returned 11.71%p.a. whilst the S&P EM Infrastructure Index returned 3.98%p.a. on a 5 year annualised basis.
Managing Director, Louis Christopher says, “In the last year, fund managers have had to contend with a raft of risk factors including the fallout from the ‘Brexit’ vote, US elections, various European elections, and also the Federal Reserve tightening monetary policy. This has posed a challenge to fund managers and tested their resolve and belief in their process and risk management techniques. Managers have maintained the course, largely looking for value and investment opportunities that are not as prone to rising yield risk. This involves earnings reliability inflationary links and an attractive long-term investment story.”
Managers have become more focused on quality of stocks and stock selection as opposed to being driven by macro economic views. Biggest gains by the funds under review were out of the North Americas and Europe. Energy companies principally located in North America, such as Enbridge and NextEra Energy were notable stocks. In the Developed markets, electrical transmission companies like CSP were positive contributors. Europe also provided for gains as stocks like Fraport (Airports) and Eurotunnel were positive performers. Evidently, utilities such as water, gas and then toll roads were the biggest contributors to the funds under review. Companies such as Transurban Group and Crown Castle International were noteworthy stocks across portfolios. The three highest rated Funds, Magellan, MBA GLI and RARE Infrastructure Income, demonstrated the best implementation of an investment process based on a strict infrastructure stock definition and fundamental equity research.
Overall, Infrastructure funds rated by SQM Research produced a higher 3-year performance average to Jun-2017, than the broader sector average. Three-year volatility for rated funds to Jun-2017 was slightly higher than the peer average. Taking the volatility and returns trade-off together, funds rated by SQM Research also produce a higher Sharpe-Ratio (3-year) than the benchmark S&P Global Infrastructure (hedged AUD) and the broader peer group average.
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