Market commentary
The global listed infrastructure sector weakened over March as the war on Iran and the subsequent impact on global energy prices drove a ‘risk off’ attitude in markets. The benchmark index (FTSE Global Core Infrastructure 50/50 Index Net Tax CAD) returned -4.18%.
Global equities were weaker as measured by MSCI World, down -7.13% in USD terms.
Global 10 year bond yields spiked higher over the month with the US rate up to 4.31%, driven by higher inflation expectations.
Portfolio commentary
The Portfolio currently holds 31 global infrastructure stocks and returned -5.00% for March which was behind the benchmark. Year to date the Portfolio is up 8.80%, which is ahead of the benchmark that has returned 8.14%.
The European and UK infrastructure holdings were the weakest over the month, which reversed the trend from earlier in the year. We added to the water sector over the month (now up to 15%) and participated in an equity raising for H2O America which was raising money for the acquisition of another water company Quadvest. H2O America ended up being one of the Portfolio’s best performers for the month (up 9%), reflecting the benefit of improved growth and secured funding. Cheniere Energy was up 20% due to the better outlook for US LNG exports given the uncertainty of flows from other regions. Amongst the weaker European and UK stocks, the European cell towers were the weakest.
Outlook
Despite ongoing geopolitical volatility and no clear timeline for the Iran war, the listed infrastructure sector remains defensive and well positioned to keep building assets and earnings for investors. The HALO (Heavy Assets, Low Obsolescence) nature of infrastructure makes the companies relatively stable in an environment where the future AI impact on business models across the economy is creating uncertainty.
Large amounts of capital continue to be invested by infrastructure companies to facilitate mega themes of our time including decarbonisation, digitalisation, water quality and transportation.
