Charles Hamieh

ClearBridge Investments, a leading global equities investment manager, has highlighted what it sees as one of the most powerful intersections of policy and technology in decades, pointing to accelerating legislative change and the surging electricity demands of artificial intelligence as catalysts for a multi-decade investment opportunity in listed utilities.

Charles Hamieh, portfolio manager at ClearBridge Investments, said new legislation in the United States and a shift in fiscal priorities across Europe are reshaping how infrastructure is funded, with profound implications for listed infrastructure.

“We are entering one of the most significant periods of change for infrastructure policy in decades,” Hamieh said. “These changes are redefining, sometimes subtly, sometimes dramatically both how projects are financed and how quickly asset bases are growing.”

In the US, the Trump administration’s One Big Beautiful Bill (OBBB) has restructured aspects of the Inflation Reduction Act, curbing incentives for renewables while simultaneously offering developers a stable, front-loaded development window to secure tax credits.

Hamieh said while the OBBB narrows the scope of policy stimulus, it avoids major setbacks for renewables. “What it lacks in scale, it makes up for in stability,” he said, adding that utilities and renewables operators with strong balance sheets and resilient supply chains stand to benefit.

Meanwhile, Europe is moving in the opposite direction, with NATO member states committing to a target of 5% of GDP for defense and security-related spending by 2035. This translates into potentially €2 trillion of infrastructure spending over the next decade and a half, ranging from resilient energy grids for military bases to new transport corridors. Germany’s newly announced €500 billion fiscal package is set to turbocharge infrastructure investment in energy, utilities and transportation over the next 12 years.

Hamieh noted, “The implications for listed infrastructure are significant, particularly in attracting private capital alongside public commitments.”

ClearBridge also sees a clear global trend: private capital is increasingly stepping into the role once dominated by governments. With corporate balance sheets and institutional investors providing the lion’s share of infrastructure financing, asset bases for regulated utilities and contracted infrastructure are expanding rapidly. This dynamic is being supercharged by technological change.

The explosive rise of AI-driven data centers and cloud computing is transforming electricity demand. A single hyperscale data center now consumes as much electricity as 80,000 homes, creating enormous pressure on utilities to expand and modernise grids. “AI and digital transformation are fueling an unprecedented surge in power demand,” Hamieh said. “This requires massive capital deployment into generation, transmission and integration of new technologies, which creates a structural growth runway for listed utilities.”

The pace of utility growth has already doubled in a decade, with asset base expansion rates climbing from 4–5% annually to 8–10% today. By the early 2030s, Hamieh expects this could rise to 12–15%, levels likely to be sustained for a decade. “The winners will be companies with the financial strength, operational capability and strategic foresight to stay ahead of the policy curve,” he said.

For investors, the message is clear. Accelerating policy shifts and AI-driven demand are creating a rare alignment of forces that could redefine infrastructure investing for decades. “We believe listed utilities globally are uniquely positioned to benefit,” Hamieh said.

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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.

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Charles Hamieh

Infrastructure has recently seen increased attention as equities weaken due to inflation, rising interest rates, global supply chain disruptions from COVID-19 and the war in Ukraine.

Charles Hamieh, Portfolio Manager, ClearBridge Investments says: “With equities weaker in 2022 and trading on fast-moving events such as the Fed’s aggressive rate hikes and war in Ukraine, infrastructure’s long-term proposition has been looking more attractive to investors.

“This is because infrastructure returns are driven by investment plans in essential services, which span ten or more years into the future, accelerate over time, and provide considerable predictability compared to more volatile equities. The relative predictability of infrastructure returns is delivered by regulated and contracted assets, which are our focus as we build infrastructure portfolios.”

Hamieh notes two key features of infrastructure that should interest investors right now.

“First, infrastructure works as an inflation hedge. Inflation has been running hot globally as the COVID-19 crisis has waned and demand for goods and services returned. The war in Ukraine gave inflation a further jolt.

“Commodity inflation has had little impact so far on regulated assets, but more broadly infrastructure is able to adjust to inflationary environments due to the largely pre-programmed way it builds inflation into regulation and contracts. This applies to both regulated utilities, which regularly reset their allowed returns with regulators to account for inflationary cost increases, and user-pays assets, such as toll roads or rail, as both types of infrastructure generate inflation-linked revenues.

“Infrastructure’s pricing power comes from the essential nature of its assets: even at times of economic weakness, consumers continue to use water, electricity and gas; drive cars on toll roads, and use other essential infrastructure services. Just as importantly, the income we look for from infrastructure is underpinned by long-term contracts, which ensure a steady flow of revenue over a long period.

“The second key feature driving interest in infrastructure is its central role in the global trend of decarbonisation. In our view, decarbonisation, or the move toward net-zero carbon emissions, provides strong investment tailwinds for infrastructure. Infrastructure and utilities are at the forefront of this effort and can offer investors a stable return on equity without taking technology risk.

“Annual power sector capital spending is expected to increase from US$760 billion in 2019 to US$2.5 trillion (in 2019 dollars) by 2030, with approximately half spent on solar, wind and other renewable energy generation and a third on modernizing and extending electricity networks.

“In an environment where coal plants are being retired or are used far less, and gas is used as a transition fuel, more spending must occur for renewables to meet power demands. In our estimation, spending on wind and solar energy infrastructure needs to accelerate at least 10x more from current levels, and this will flow through to allowed returns for regulated utilities building out these resources.

“Electric vehicles have also been gaining more consumer acceptance.: In some estimates, around 20% of vehicles sold annually today are electric, but by 2030, that is expected to increase to 60%, although figures differ from country to country. Particularly with high fuel prices top of mind, electric vehicle sales seem likely to continue accelerating.

“Other consumer transportation changes might result from global decarbonization. Rising fuel prices and rising emissions also affect air travel. Airlines could be taxed if flights are too short, making rail and public transit look more appealing to some consumers.

“And while energy infrastructure pipelines have seen renewed interest as energy security has become a strategic priority (in Europe, for example), midstream pipelines are also beginning to facilitate an energy transition through hydrogen or carbon capture and storage, developing technologies that will only have an increasing role in net-zero efforts.

“So there are several areas of infrastructure benefiting from decarbonisation tailwinds, not to mention other secular trends like 5G driving investment in communication towers, and with its ability to largely pass-through inflation as well as provide current income, infrastructure’s attractiveness now is no surprise.

“There are several ways to invest in infrastructure; our preference is to focus on a diversified group of large, liquid, high-quality infrastructure companies around the world.

“We want companies with strong, predictable cash flows — what we don’t want are illiquid assets and companies with volatile cash flows, including competitive assets and businesses, which tend to be unregulated and carry commodity price risk. We also see private infrastructure capital continuing to come to listed markets to find attractively priced assets for acquisition. Currently, with over USD $300 to $400 billion of dry powder, or capital waiting to be invested, unlisted players will benefit the companies in our listed infrastructure universe as these companies sell these assets, often non-core or minority interests, for well in excess of where they are currently trading. On average, we have seen these sales done at roughly a 30% premium to where they are currently trading or their implicit value within these companies.

“In summary, we believe the opportunity set for infrastructure investors is only set to grow, with a number of powerful drivers, as well as attractive valuations and potential dividends that income-seekers would find appealing,” notes Hamieh.

The ClearBridge RARE Infrastructure Income Fund brings a robust stock selection approach, scouring developed and emerging markets for listed and liquid infrastructure opportunities that are well-positioned to benefit from the all-encompassing, generational move towards decarbonization. Focusing on regulated and contracted utilities and user-pay assets, the Fund aims to deliver stable returns with steady and growing cashflows as well as dividends that increase over time in a low-volatile fashion.

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Charles Hamieh

Leading investment platform provider Praemium has added ClearBridge Investments’ Developed Markets Infrastructure Income Model Portfolio to the Praemium Separately Managed Accounts (SMA) menu, providing greater access to the strategy.

Drawing on ClearBridge Investments’ strong global listed infrastructure capabilities, the Model Portfolio has been designed to produce attractive and stable returns by investing in an actively managed portfolio of infrastructure securities in developed markets.

The range of infrastructure sub-sectors in the portfolio includes gas, electricity and water utilities, toll roads, airports, rail and communications infrastructure throughout developed markets.

Top holdings in the portfolio include British multinational gas and electricity utility National Grid, US energy company Public Service Enterprise Group, Spanish electric utility Iberdrola, Scottish energy company SSE plc and toll road company Atlas Arteria.

As at 28 February 2022, the ClearBridge Developed Markets Infrastructure Income Model Portfolio produced a gross return of 21.0% since its inception**, compared with the 10.5% return for its benchmark, the OECD G7 Inflation Index + 5.5%.

Portfolio Manager Charles Hamieh says infrastructure is at the centre of several long-term thematics, including COVID recovery stimulus programs, decarbonisation and the transition to net-zero, transport efficiency and digital connectivity.

Hamieh says that in the current environment exposure to infrastructure assets can help protect against the impact of rising inflation.

“For a lot of infrastructure assets, inflation is a pass-through. If you look at toll road or airport operators, they will increase tariffs or tolls with inflation. If you look at a utility, there is either a  direct or indirect pass-through of inflation in its revenue model. Inflation is a positive in that sense.

“There will be increases at the cost line but the net cashflow position is neutral to positive,” Hamieh says.

Praemium’s Head of Investment Managers and Governance, Damian Cilmi says: “As we enter a higher inflation environment, having access to portfolios that offer the opportunity for diversification and some protection from inflation will be increasingly important for investors.  We’re pleased that Praemium is one of the first SMAs to offer advisers and their clients access to ClearBridge Investment’s infrastructure portfolio.“

Ryan Loehr, Partner at leading wealth advisory firm Emanual Whyborne has welcomed the addition of the ClearBridge model portfolio to Praemium.

“We recognised the likelihood of accelerating inflation post record levels of stimulus and the impact this would have on valuations. ClearBridge, offers listed infrastructure solutions that offer our  clients more stability than traditional equities.

“We view infrastructure as a preferred asset class and we regard ClearBridge as market leaders in this space. ClearBridge’s fund performance , particularly over the last year and during the market sell-off since mid-November is a testament to their experience and capabilities. Direct, convenient access to their model income portfolio via this leading platform is a positive for advisors and clients alike in our view,” Mr Loehr said.

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Charles Hamieh

ClearBridge Investments^[1], part of Franklin Temepleton, has announced the launch of an additional fund to their suite of global listed infrastructure funds with the introduction of an unhedged version of the high performing ClearBridge RARE Infrastructure Income Fund.

Both ClearBridge RARE Infrastructure Income Funds – Hedged and Unhedged –  aim to provide investors with long-term inflation-linked capital growth over an economic cycle with a focus on providing reliable income targeting 5% p.a., net of fees. This is achieved by investing in a range of global listed infrastructure securities such as gas, electricity and water utilities, renewables, toll-roads, airports, rail and communication infrastructure, all of which traditionally exhibit predictable income streams and income growth.

The Income Fund typically has a defensive tilt, lower beta and correlation with global equities, and can offer diversification benefits to a broad portfolio.

The return target is to outperform the OECD G7 Inflation Index by 5.5% p.a. over an investment time frame of five years, net of fees.

In the 12 months to May 31, 2021 the ClearBridge RARE Infrastructure Income Fund (Hedged) has returned more than 14% p.a. and has posted an annual average return since inception in 2009 of 11.2% p.a., exceeding the benchmark by 4.4% p.a..^[2] Currently the hedged version of the Fund manages $403 million while the recently launched unhedged version manages $284 million.

ClearBridge Investments Portfolio Manager Charles Hamieh said: “The decision to create an unhedged version of the popular infrastructure income fund reflects feedback from both institutional and retail investors who demanded greater choice and flexibility to invest in our funds and traditionally manage their own currency risk.

“The new unhedged fund has a minimum investment of $20,000 AUD and is accessible via most major investment platforms used by the advisory industry.

“The fund will typically invest in 30 to 60 stocks spread across geographic regions both in the developed and emerging markets,” he said.

The top five stock holdings at present are: Atlas Arteria (Asia Pacific, Toll Roads); Exelon Corp (US Electric); Clearway Energy (US/Canada, Renewables); SSE (Western Europe, Electric) and Sydney Airport (Asia Pacific, Airports).

The ClearBridge RARE Infrastructure Income Fund was a winner at the 2020 Zenith Fund of the Year Awards and the 2021 Money Management Fund Manager of the Year for Infrastructure Securities.

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[1] “ClearBridge Investments” refers to ClearBridge Investments Limited (AFSL 307727) (formerly known as RARE Infrastructure Limited) and its authorised representative ClearBridge Investments, LLC.
[2] Fund performance is net of fees, assuming all distributions are reinvested and before tax. Past performance is not indicative of future performance.

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Charles Hamieh

The recent fall in the stock market is providing one of the best opportunities to invest in Emerging Markets (EM)  listed infrastructure, notes RARE Infrastructure’s Senior Portfolio Manager, Charles Hamieh.

In a recent investor presentation, Mr Hamieh analyses the thematics in Emerging Markets and the key drivers of EM infrastructure in the COVID-19 environment.

He notes:

• COVID-19 crisis has hit Developed Markets more severely than expected since late March relative to Asia – where most countries have initiated adopting preventive measures earlier as infection spread. Asian EM equity markets have also started pricing in COVID-19-related risks earlier in the year as confirmed cases spiked.
• Invest in EM to capture secular themes underpinned by strong government objectives and agendas, which are unlikely to be derailed by COVID-19 response even if facing any short-term delay.
• Most EM utilities with strong balance sheet positions and defensive cashflows have been sold off together with the market indiscriminately, even with limited risk to commodity price volatility and or volume downside.
• Draconian containment measures in China from late January have quickly brought pandemic under control, to facilitate industrial activity resumption from March; also supporting near-term growth of Asian economies closely linked to China’s supply chain.
• Long-term growth prospect for both utilities and infrastructure is stronger in EM than DM; need for stable and reliable supply of water, electricity, and other essential goods/services has been especially pronounced during recent months of lockdown across countries.

The  RARE Emerging Markets Strategy is  invested in high-quality companies benefiting from structural drivers, with strong cash flow and dividend yields.

Mr Hamieh notes: “We have strong conviction in the long-term opportunities within Emerging Markets listed infrastructure. At the regional level, the Strategy is split between Asia Pacific EM (70%) and Latin America (26%) with the remainder in cash. At the sector level, the Strategy is split between economically sensitive user-pay assets (36%) and regulated utilities (60%).”

Read the detailed presentation.

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RARE Senior Portfolio Manager Charles Hamieh said the decelerating global growth of 2018/19 could be seen as a late- cycle pause rather than a precursor to recession.

“We think the market has been too pessimistic for growth prospects in 2020,” Mr Hamieh said.

“As the likelihood of recession diminished we saw a cycling from defensive stocks to growth and value and we expect this trend to continue at least till mid-2020.

“Lower inflation and lower interest rates could lead to a further expansion of earnings multiples for equities including listed infrastructure.

“There is now a general acceptance that monetary policy has become less effective and that central banks don’t have the levers to offset a large downturn.

“Political uncertainty and a shift to nationalistic policies has created uncertainty for corporates and delayed investment decisions.

“Luckily, infrastructure has been spared this scepticism as regulators continue to approve projects, driving near record asset base growth and giving certainty to future earnings growth across the sector.

“One of the key drivers for infrastructure is likely to be the increasing focus on ESG principles  (Environmental Social and Governance) and we predict the US election will likely see ‘green’ infrastructure programs gain momentum.

“Global initiatives to reduce carbon emissions are resulting in local actions to support the further development of renewable energy and the drive toward greater electrification.

“Governments are setting targets for electricity sourced from renewable energy – EU 32% by 2030, California 60% by 2030, Virginia 0% carbon by 2050 – and the Bloomberg New Energy Finance researchers expect 80% of new capacity growth through 2050 will come from renewables.

“Meanwhile, significant capital is being spent to mitigate the effects of climate change and adapt networks and infrastructure to cope with more volatile climatic events, such as ice storms and wildfires.

“There is a movement to increase the efficiency of infrastructure, for example through the development of electricity storage, and in the reduction of wastage, such as from leaking pipes in water networks.

“All this is driving near-record rate base growth across the sector thus presenting and increasing quantum of investment opportunities,” said Mr Hamieh.

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