Charles Hamieh
ClearBridge Investments (ClearBridge), a leading global equity manager, notes that despite volatile markets, global listed infrastructure has performed in line with infrastructure benchmarks for the quarter.
ClearBridge Portfolio Manager Charles Hamieh says: “The combination of peaking interest rates and inflation continues to cause volatility as investors weigh the probability of a recession against reasonably strong economic data.
“Inflation continues to moderate, but remains at an elevated level, with recent data showing that economic strength is making it difficult for central banks to loosen policy quickly. Although maintaining a tight position is common across most economies, varying economic circumstances may see monetary policy diverge from this position. Consensus remains divided on recessionary expectations, with the duration and depth of a recession remaining the largest risk to investors.
“Against this backdrop, ClearBridge Infrastructure Value Strategy maintained a well-diversified exposure to regulated and contracted utilities and economically sensitive user-pays infrastructure,” he notes.
For the strategy, on a regional basis, Asia Pacific was the top contributor to quarterly performance (+0.73%), with Japanese rail operators East Japan Railway (+0.34%) and Central Japan Railway (+0.32%) being the lead performers, he adds.
East Japan Railway (JR East) is Japan’s largest passenger railway operator. Transporting 17 million passengers per day, JR East operates the Shinkansen high-speed rail lines north of Tokyo, as well as commuter trains within the Tokyo metropolitan network.
Central Japan Railway (JR Central) is a passenger railway company based in the Chubu region of central Japan. The company operates the Shinkansen high-speed passenger trains that connect Tokyo with Kyoto and Osaka with a network of commuter lines centred in Nagoya. The share prices of JR East and JR Central rallied with Japan reopening their borders post COVID-19.
“In North America, U.S. rail operator CSX (+0.45%) also performed strongly. It is one of the five leading North American rail companies, with over 21,000 miles of rail, covering 23 states and 40+ ports. CSX is engaged in the transportation of rail freight in the Southeast, East and Midwest via interchange with other rail carriers, to and from the rest of the U.S. and Canada. CSX delivered positive returns following a quarterly result in which the company showed strong improvements across key quality indicators and improvements in its operating ratio,” adds Hamieh.
The strategy manages over $2.9 billion in funds under management and seeks long-term inflation-linked capital growth over a complete economic cycle.
Hamieh says “We continue to maintain our defensive positioning. Across regulated utilities, fundamentals are still very strong with strong asset base growth driving very attractive free cash flow and cash flow that is being deployed into capex or being paid out to investors.
“We are also looking for more select opportunities to increase exposure to high-quality user-pays assets in sectors such as airports, passenger and freight rail, and toll roads.
“The outlook for infrastructure remains positive. Infrastructure’s focus on cash flows and underlying earnings make it a very attractive sector as economic conditions deteriorate. With inflation elevated and its path uncertain, the sector continues to act as a strong inflation hedge, where the pass-through of inflation is enshrined in regulation or concession agreements.
“And longer term, infrastructure’s exposure to decarbonisation, onshoring of industry and the explosion of data demand bodes well for the long-term asset base growth and the nearer-term cash flow generation and dividend story,” he says.
