A focus on any one infrastructure benchmark will not provide sufficient diversification within GLI, with investors limiting exposure and potential investment returns, Mr Bellingham said.

“The GLI space in particular has undergone significant change in recent years, particularly with utilities, however the relevant global benchmarks representing the infrastructure universe don’t adequately reflect this.

“As part of the transition pathway towards achieving net zero emissions over the next five, 10 and 20 years, investment portfolios need to be positioned to better reflect some of these changes,” he said.

He said an investment approach exists which provides institutional investors, including superannuation funds, with diversified exposure to global renewables, delivering improved returns, reduced portfolio risk, and which satisfies requirements of the YFYS reforms.

“There is limited exposure to renewables in any benchmark, but particularly within the benchmark chosen under the YFYS reforms – the FTSE Developed Core Infrastructure Index. This index which contains just one stock – US-based energy company, NextEra Energy.

“If super funds assume a zero active-risk position relative to the benchmark, they will end up with a concentrated single stock that fails to capture a far broader opportunity set. It also means they are limited at a country level, which carries risk,” he said.

Mr Bellingham said one investment approach to GLI is to capture the defensive growth characteristics of the infrastructure universe by creating a diversified portfolio that can be used as a core and liquid allocation to the sector.

“This way, investors can gain more diversified exposure to the potential benefits of the global transition to net zero. The approach is flexible and scalable in meeting a range of risk budgets, and substantially reduces stock and country-specific risk.

“Opportunities do exist to stay active and outperform, while also providing exposure to one of the biggest transition and investment developments in the coming years and decades. Investors are encouraged to re-evaluate their exposure to renewable investments before they miss out altogether,” he said.

Mr Bellingham’s comments precede the UN Climate Change Conference in Glasgow later this week, where global efforts towards reducing the impacts of climate change will be discussed by world leaders.

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Ganesh Suntharam

The strengthening of China’s commitment to carbon emission targets, coupled with the return of the United States to the Paris Climate Agreement, sets the stage for a globally coordinated move away from fossil fuels and towards a greener economy, according to Redpoint Investment Management’s chief investment officer, Ganesh Suntharam.

Mr Suntharam believes this energy transition will require investment of additional capital and is set to dominate a host of economic sectors over the coming years, presenting significant potential for above average risk-adjusted investment returns. The transition will likely create opportunities within Global Listed Infrastructure assets, with an increasing number of established, renewable energy infrastructure companies listed on global exchanges.

“These renewable infrastructure assets have a diversified mix of revenue streams from multiple renewable sources and geographies, and are well ahead of many traditional utility companies in terms of the transition to clean energy.

“Many of these renewable energy companies have also established a first-mover advantage and in doing so, have built up significant technical expertise and experience in owning and operating renewable energy generation assets,” he said.

Mr Suntharam said Europe has led the way in the sector and cites Danish company Orsted as being a good example of a leading technological capability in offshore wind farming. However, he said for investors looking to obtain increased exposure to listed renewable infrastructure companies, typical benchmarks will not usually meet their needs.

“Most infrastructure benchmarks typically contain little exposure to renewable energy companies outside of the traditional utility companies, which themselves are still dominated by fossil fuels.

“US-headquartered NextEra Energy is the only company with a majority of its business exposure from clean energy that features in the FTSE Core Developed Infrastructure index flagged in the Your Future Your Super legislation,” he said.

The combination of a widespread structural shift in energy production and the relatively limited exposure of traditional benchmarks to this thematic is also driving a more research-based approach to stock selection, according to Mr Suntharam.

“The need to search beyond the traditional indexes to identify opportunities within global listed infrastructure assets is becoming more apparent.

“From a portfolio perspective, we know renewable energy companies bring diversification benefits and potential for cashflow and dividend growth as they become more mature, so the ability to find these investments using a systematic, research-driven approach is more important than ever,” he said.

“Beyond the investment merits of these stocks, the Environmental, Social and Governance (ESG) attributes are also now more pronounced. Recent global research highlighted that companies involved solely in the clean energy transition are at the forefront of ESG investing, with these companies set to benefit from favourable fund flows and changing ownership levels as investors look to add ESG influence beyond negative screening.

“Developments in the renewable and clean energy sector in recent years has seen the sector transform from a riskier and more experimental investment prospect to one which is more securely established, and ESG investing has been central to this transformation.

“The sector now presents investors with an opportunity to invest in more mature assets with stable yield and growth characteristics similar to those of other infrastructure sectors. Expectations for escalating multi-decade growth and development in the sector is expected to underpin the investment case for renewables as a valuable, long-term investment,” said Mr Suntharam.

Redpoint’s Global Listed Infrastructure Strategy is designed to capture the key characteristics of infrastructure in a diversified portfolio. It aims to provide lower volatility than global equities, along with a focus on quality companies and long-term sustainable income growth. It has outperformed the FTSE Core Developed 50/50 Benchmark since its inception year of 2012.

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