The 2012 sector review is our fifth review of listed infrastructure products and covers five listed-infrastructure strategies and three investment managers.

S&P’s fund analyst Nathan Bode said: “In recent years, the global listed infrastructure sector has performed broadly in line with expectations. While global equity markets have fallen, the infrastructure sector has proven reasonably resilient; outperforming broader equities. The listed infrastructure sector has experienced lower volatility, lower drawdown, and a relatively low return correlation when compared with broader equities. These characteristics continue to make listed infrastructure an attractive proposition within a diversified investment portfolio.”

“As demand for the listed infrastructure sector grows, the number of investment offerings in the market also grows. As the number of investment offerings grows, so do opportunities for investment practitioners. To date, this has played out in a number of ways: through a heightened level of team augmentation, as well as team turnover,” said Mr Bode.

There continues to be no five-star rated managers in the peer group; of the active managers, there is only one rated four stars. The ‘On Hold’ ratings of AMP Capital’s global listed infrastructure funds have been resolved as part of this review; with the previous three-star ratings reinstated. While we believe there are benefits in bringing in-house the management of AMP Capital’s listed infrastructure capability, the team—in its current form and structure—remains unproven over a market cycle.

26 July 2012

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We placed the fund ‘On Hold’ on March 27, 2012, following AMP Capital Investor’s (AMPCI’s) and Brookfield Investment Management’s decision to unwind their joint venture, AMP Capital Brookfield.

AMPCI has brought the management of its listed real estate capability in-house. While there has been a degree of team turnover within the global real estate securities capability (particularly in the US), there have been no changes to AMPCI’s well-resourced Australian-based real estate securities investment team.

“We consider senior portfolio manager Mark Ferguson a highly proficient real estate securities investor. More than that, over time we have witnessed Mr. Ferguson positively influence the development of the Australian-based analysts; analysts who are now making meaningful contributions to the domestic strategy. This underpins S&P’s four-star rating,” said S&P Fund Services analyst Nathan Bode.

AMPCI has sought to enhance its investment process. While stock-level research remains critical to the predominantly bottom-up investment approach, the work carried out and focus of the analysts has changed.

AMPCI has added flexibility in valuation, but introduced a more structured approach to portfolio construction.

“While there appears to be a higher level of engagement and ‘buy in’ by the investment team in the new process, we would expect that these changes will take some time to bed down. This is an area that S&P will monitor closely,” added Mr. Bode. The business transaction is expected to complete shortly, although the operational separation is complete.

16 July 2012

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AMP Capital will bring the management of its listed property and listed infrastructure capabilities in-house. This has significant implications for both the AMPCB listed property and listed infrastructure teams. While the listed property personnel based in Sydney, Hong Kong, and London will remain with AMP Capital, new investment personnel have been hired to cover the Americas region and will be commencing imminently. Further, a new head of global listed real estate, Matthew Hoult, has been appointed.

The extent of change within the listed infrastructure business is equally as significant. The five-person team will comprise just three former AMPCB personnel, including the newly promoted head of global listed infrastructure, Tim Humphreys. The four Chicago-based investment staff will not remain with AMP Capital, nor will Sydney-based senior investment analyst Sarah Shaw. Two new analyst appointments have been made to AMP Capital’s London office.

“This is a significant development—one which affects a number of AMP Capital-distributed and AMPCB-managed funds. And so, we have placed our ratings on these funds ‘On Hold’. We will meet with AMP Capital shortly, and will seek to resolve the ‘On Hold’ ratings,” said S&P Fund Services analyst Nathan Bode.

The AMP Core Property Fund rating has also been placed ‘On Hold’ following these changes, due to its investment of about 25% of funds under management in the global listed property securities strategy.

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The three investment options (classes of unit) provide a conservatively managed exposure to the specialised health care property sector but with different fee and liquidity mechanisms. 

“We view the team responsible for the trust very highly, in particular, head of health care and retirement property funds Chris Smith. The team, led by Mr. Smith, has delivered strong risk-adjusted returns to investors over a long track record. We’re comfortable that this can continue through the cycle,” said Nathan Bode, analyst at S&P Fund Services. 

Since our last review, the trust has raised over A$20 million through a priority rights offer (PRO). Capital raised will be used for the redevelopment and expansion of three hospitals. The PRO reduces the amount required to be funded from borrowings. Importantly, it maintains the fund’s relatively conservative equity/debt structure. 

The planned works increase the weighted average lease expiry (WALE), and smooth out the fund’s lease expiry profile (lease extensions have been negotiated for the three hospitals). While expansion and redevelopment initiatives like these introduce risks, and make management of the fund slightly more complex, Australian Unity Investments has strong active-management experience. Importantly, we view the redevelopment and capital management initiatives as being consistent with the manager’s focus on delivering strong, and improving, risk-adjusted returns.

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The three funds are the Aviva Investors Professional Dividend Builder, Australian Equities, and Elite Opportunities funds.

The ratings and reports are part of our recent review of the Australian equity-large-cap peer group of funds.

As previously communicated Aviva Plc, the parent of Aviva Investors, is selling its Australia business to nabInvest, and although subject to regulatory approval, the transaction is expected to close this quarter.

“We believe that nabInvest will provide a suitable home for the Aviva Investors Australia business, and are pleased that the well-regarded team and process will remain intact,” said Standard & Poors’ fund analyst Nathan Bode.

“The equities team has delivered strong returns across its product line-up and over a full-market cycle. Overall, we have retained a high level of conviction in all three funds,” said Mr. Bode.

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