For today’s discerning financial and investment professional
A special supplement in conjunction with
The power of global listed infrastructure Meeting the challenges of today's investment world December 2020
I NTRODUCTION
December 2020
INVESTMENT SPOTLIGHT:
THE M&G GLOBAL LISTED INFRASTRUCTURE FUND This special supplement from IFA Magazine drills down into the objectives, investment approach and management style behind the M&G Global Listed Infrastructure Fund. The supplement aims to help you to gain a deeper understanding of how the fund is managed and the investment issues involved. It also highlights why the management team, led by Fund Manager, Alex Araujo, believes that the future for the sector - and this fund – holds such significant opportunities. These are challenging times for investors and investment managers alike. The investment due diligence process for advisers and investment managers has become more important than ever. Covid-19 and the climate crisis are just two of the key drivers which are changing the world we live in. For the investment landscape, matters of risk remain paramount and a focus on sustainability is already changing investors’ attitudes. But, achieving effective diversification within investment portfolios, especially those with a yield objective, is a particular challenge. It is also one where investment in global infrastructure can prove a highly attractive component part. For those looking for a fund with a global mandate, which operates within a sector which demonstrates outstanding opportunities for growth, has strong ESG credentials and which is well diversified across three key areas of
infrastructure, then M&G’s Global Listed Infrastructure fund has clear appeal. Sue Whitbread Editor IFA Magazine Important information The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment. The fund holds a small number of investments, and therefore a fall in the value of a single investment may have a greater impact than if it held a larger number of investments. Investing in emerging markets involves a greater risk of loss due to greater political, tax, economic, foreign exchange, liquidity and regulatory risks, among other factors. There may be difficulties in buying, selling, safekeeping or valuing investments in such countries. Further details of the risks that apply to the fund can be found in the fund's Key Investor Information Document and Prospectus. The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. Ratings as at 31.10.20. The Morningstar Overall Rating based on the fund’s Sterling Class I shares. Historical Sustainability Score as of 31 October 2020. Sustainability Rating as of 31 October 2020. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Historical Sustainability Score. © 2020 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Out of 278 Sector Equity Infrastructure funds as of 25/11/2020. Based on 100% of AUM. Data is based on long positions only. Ratings should not be taken as a recommendation. Past performance is not a guide to future performance.
CONTENTS Page 3
THREE YEARS IN THE PURSUIT OF RELIABLE LONG-TERM GROWTH
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INVESTING IN THE PHYSICAL NETWORKS THAT ENABLE OUR DIGITAL SOCIETY
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LISTED INFRASTRUCTURE IN A WORLD OF INFLATION
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MEET THE MANAGER - IFA Magazine talks to Alex Araujo, Fund Manager, M&G Global Listed Infrastructure fund WHY INFRASTRUCTURE WILL BE KEY TO A ‘GREEN’ RECOVERY INVESTING IN THE ROAD TO ZERO CARBON
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BUILDING THE MODERN WORLD the future of infrastructure as the backbone of the global economy
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THINKING BIG - a look at the potential for evolving infrastructure
IFA Magazine is published by IFA Magazine Publications Ltd, 3 Worcester Terrace, Clifton, Bristol BS8 3JW Tel: +44 (0) 1173 258328 © 2020. All rights reserved ‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. IFA Magazine is for professional advisers only. Full details and eligibility at: www.ifamagazine.com
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THREE YEARS IN THE PURSUIT OF RELIABLE LONG-TERM
GROWTH Alex Araujo, Fund Manager of the M&G Global Listed Infrastructure fund, explains how he and his team are successfully managing the investment strategy three years on from launch. With a focus on achieving the fund's twin objectives, Araujo explains why he and his team remain optimistic as they ever have been about the long-term growth opportunities in listed infrastructure
• The fund was launched in October 2017 with a clear focus on long-term growth opportunities in listed infrastructure.
asset class across the vagaries of the economic cycle have an equally important part to play in investors’ portfolios over the long term.
• The fund pursues a modern approach to provide access to the full breadth of the asset class, including what we see as the structural growth trends in digital infrastructure.
FOCUS ON LISTED COMPANIES WITH PHYSICAL ASSETS
• ESG is integrated in the investment process as a key consideration for seeking financial returns over the long term. • The market downturn in March triggered by the onset of COVID-19 presented some attractive buying opportunities, in our view; we established six new holdings in utilities in our efforts to strengthen the fund’s income stream. • Fiscal stimulus may provide a favourable tailwind as governments increase infrastructure spending to revive the global economy. PHILOSOPHY AND APPROACH Infrastructure holds an important place in the fabric of modern society, serving as the backbone of the world economy through good times and bad. As such, we believe that the stable and growing cashflows generated by the
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Our strategy invests in listed infrastructure, with a clear focus on asset-backed businesses in the belief that physical assets provide a sustainable barrier to entry. We do not invest in private companies; we only invest in listed companies, which benefit from the liquidity inherent to publicly traded equities. By doing so, we have tremendous flexibility in our portfolio and our proprietary investible universe to seek to take advantage of opportunities presented by market events, such as the indiscriminate sell-off in March 2020 as the global pandemic took hold. We will continue to act on these types of opportunities. We invest in critical infrastructure with physical backing, where the assets are long-life in nature. This long-term aspect is captured in concession businesses, which we believe can generate stable and growing cashflows over several decades, as well as royalty companies, which provide the ultimate in long-term cashflow streams because the cashflows from their physical landholdings can run into perpetuity.
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FOCUS ON DIVIDEND GROWTH
THREE-YEAR PERFORMANCE
We are resolutely focused on dividend growth in the belief that listed infrastructure provides a broad range of opportunities for long-term growth, from the inflationlinking in certain sectors to the powerful thematic trends driving digital infrastructure. Dividend growth is key to the fund’s objective of providing a rising income stream. In that context, the fund’s yield is an outcome of our stock selection. Listed infrastructure has typically offered a yield premium to global equities and the fund is currently offering a historic yield of 3.7% (GBP I Inc shares, as at 1 October 2020, preliminary data), compared to the MSCI ACWI Index’s 2.0% (Source: MSCI Inc., 30 September 2020), but this is very much an outcome. Our income priority is to grow the fund’s distribution for our clients.
In the three years since the fund’s launch in October 2017, the M&G Global Listed Infrastructure Fund outperformed the MSCI ACWI Index with an annualised total return of 8.6% (GBP I Acc shares). Each segment of the portfolio – ‘economic’, ‘social’ and ‘evolving’ infrastructure – made a positive contribution to performance. The fund also delivered on its income objective by increasing the distribution by 6.5% for the financial year ended 31 March 2020 (GBP I Inc shares).
A MODERN APPROACH TO LISTED INFRASTRUCTURE Infrastructure is expanding rapidly beyond the traditional realm of utilities, energy pipelines and transport – sectors commonly known as ‘economic’ infrastructure. In order to capture the full breadth of the asset class and the qualities it has to offer in its entirety, we invest in three distinct categories: ‘economic’, ‘social’ and ‘evolving’ infrastructure. ‘Economic’ infrastructure accounts for the largest part of the portfolio with a typical weighting of 65-75%, but we also invest in the more defensive ‘social’ infrastructure, which covers facilities in the health, education and civic domain. The ‘social’ segment typically accounts for 10-20% of the portfolio. ‘Evolving’ infrastructure, our third and final category, adds a unique profile. The long-term growth opportunities from communications infrastructure, transactional and royalty companies inject a new dimension to an asset class more commonly associated with stability. ‘Evolving’ infrastructure is expected to range between 15% and 25% of the portfolio. Figure 1. Fund philosophy and approach
The benchmark is a target which the fund seeks to outperform. The index has been chosen as the fund’s benchmark as it best reflects the scope of the fund’s investment policy. The benchmark is used solely to measure the fund’s performance and does not constrain the fund's portfolio construction. The fund is actively managed. The fund manager has complete freedom in choosing which investments to buy, hold and sell in the fund. The fund’s holdings may deviate significantly from the benchmark’s constituents. Source: Morningstar, Inc., as at 30 November 2020, GBP Class I Acc shares, income reinvested, price-to-price basis. Benchmark returns stated in share class currency.
UPSIDE CAPTURE, DOWNSIDE PROTECTION
Source: M&G, 2020 *Expected annual dividend increase, for illustrative purposes only. Internal guidelines only, subject to change
Creating a balanced portfolio from these three infrastructure classes provides a diversified exposure to an asset class with compelling characteristics.
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The fund experienced a variety of market conditions during its first three years, but the outperformance was driven by a recurring pattern: capturing most of the upside during market rallies and providing downside protection when markets fell (see Figure 2). The upside capture was a direct consequence of the fund’s resolute focus on growth, while the downside protection was a reflection of the defensive qualities of listed infrastructure as an asset class. The fund delivered a positive return in 2018 when equity markets fell, and outperformed its benchmark, the MSCI
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Figure 2. Performance in rising and falling markets since fund launch
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There is scope for further upside, in our view. A phased reopening of economies, or a successful vaccine, for instance, could lead to a significant reassessment of these businesses as investors contemplate a world returning to normal. The fund’s look-through exposure to airports is currently limited to about 5%. NARROWNESS OF MARKET LEADERSHIP
Source: M&G, Aladdin, 30 September 2020. Investment return (gross of fees) calculated in sterling. Fund was launched on 5 October 2017. Investment returns are shown to eliminate timing issues between the pricing of the fund (product return net of fees), which is calculated at midday in London, and the close-of-trading day pricing of the index. Past performance is not a guide to future performance.
ACWI Index in 2019 as the markets rallied, but has faced more challenging times so far in 2020 against a difficult backdrop for listed infrastructure strategies. This year’s performance has been influenced by events in March when the weakness in energy infrastructure and transport weighed on returns, and the period from June onwards when ‘new economy’ stocks dominated proceedings and propelled equity markets to all-time highs. COVID-19 The exogenous event of a global pandemic was an exceptional circumstance which had unique consequences for listed infrastructure. Energy infrastructure came under severe pressure in March as pipeline stocks became embroiled in a broader sector malaise, thwarted by the dual shock of increased supply from Saudi Arabia and lower global demand in the wake of COVID-19. The cashflows generated by energy infrastructure businesses have different characteristics to those of oil & gas producers; they have limited direct exposure to the underlying commodity price, although fundamentals gave way to sentiment in an environment of extreme uncertainty. Transportation infrastructure, in particular airports, was another area under pressure as the world entered lockdown. In contrast to previous recessions when traffic volumes slowed, the enforcement of ‘stay-at-home’ policies saw international travel come to an abrupt halt. Despite the challenges in the short term, we continue to have a positive view and we believe our long-term perspective has already worked in the fund’s favour. Energy infrastructure and transport, which led the detractors in March, were strong in the rebound in April and May. Our decision to add to selected holdings during the market downturn was swiftly rewarded.
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In contrast to the one-off nature of the global health crisis, the narrowness of market leadership, which was apparent from June onwards, provided a more familiar headwind for listed infrastructure. The technology-led rally in January 2018 was another example when the reliable growth from listed infrastructure was largely ignored as investors chased the momentum behind ‘new economy’ stocks. This time round, Apple and Amazon.com stood out as the beneficiaries of the market’s scramble for growth, which gathered pace with little heed for value. These paragons of the modern world are simply not infrastructure businesses and are therefore ineligible for our strategy, although their explosive growth is reflected in our digital infrastructure exposures. Many of the market’s tech leaders are important and growing tenants of our data centre holdings, for example. We continue to believe that listed infrastructure provides attractive opportunities for long-term growth from a variety of sources, without being hostage to the market’s fickleness and its bouts of excessive euphoria. ‘New economy’ stocks made a hasty retreat from their peaks in September. PORTFOLIO ACTIVITY The fund is usually managed as a low turnover, buyand-hold strategy. There were just five new purchases and six complete sales during the first two years of the fund’s history. One of the sales, John Laing Infrastructure Fund, was driven by a takeover approach. However, the indiscriminate selling in March triggered by the onset of COVID-19 created buying opportunities, in our view, for long-life infrastructure assets which are critical for the smooth functioning of modern society, while delivering reliable revenue and cashflow growth. Valuation is a key consideration in our stock selection process. We were therefore more active than usual during the period of market volatility to take advantage of what we considered attractive entry points. We capitalised on what we considered to be relative value opportunities in utilities, which proved distinctively resilient during the global health crisis. We see the sector acting as a bastion of strength against the backdrop of ongoing economic uncertainty.
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We initiated six new positions in utilities since March. We have been tracking these companies for many years, but the valuations were out of reach until the recent market downturn presented the buying opportunity we were waiting for. The new purchases were selected from around the world, and for us, each one has its own growth story. In the US, NextEra Energy Partners is a pure play on the structural growth in renewable energy, while Sempra Energy and AES Corp provide a different dynamic. Sempra diversifies the exposure we already have to California and Texas by way of our existing holdings in Edison International and Atmos Energy, with the addition of potential growth avenues in the key transition fuel of liquefied natural gas (LNG), as well as emerging markets through its presence in Mexico. AES Corp’s long-term growth is driven by its transition to renewables and battery storage, in addition to its emerging market exposure and the transformation of its asset portfolio by way of an aggressive phase-out of coal. A2A, the Italian multi-utility, also combines growth in renewables with a rapid decarbonisation programme. ContourGlobal is listed in the UK but has a broad geographic footprint with exposure to growth in emerging markets as well as the trend towards sustainable energy sources. China Gas Holdings is another beneficiary of structural growth as China reduces its reliance on coal and shifts its source of power and heat generation to gas. This critical aspect of the energy transition is a multi-decade trend, in our view. We bought the Hong Kong-listed shares. Following these transactions, the fund’s utilities weighting rose to the highest since inception at 38% (see Figure 3). Figure 3. Utilities: we increased exposure to the highest level since fund inception
The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment. Investing in emerging markets involves a greater risk of loss due to greater political, tax, economic, foreign exchange, liquidity and regulatory risks, among other factors. There may be difficulties in buying, selling, safekeeping or valuing investments in such countries. DIVIDENDS COVID-19 and its knock-on effect on the global economy have had a profound effect on corporate cashflows and dividends. We therefore took decisive action and made efforts to strengthen the fund’s income stream, with the new utilities holdings providing the necessary ballast. NextEra Energy Partners and China Gas Holdings have already made their mark with double-digit dividend increases. We view the utilities sector as having the most reliable revenue and cashflow prospects in the current environment. Despite the need for caution in certain industries, dividends from listed infrastructure companies have been highlyresilient. Many of the fund’s holdings have continued to pay and increase their dividends since March as a reflection of their cash-generative qualities and their confidence in longterm growth potential. The fund benefited from dividend increases across the spectrum of listed infrastructure as well as a broad range of countries. In ‘economic’ infrastructure, utilities companies demonstrated the resilient nature of their business models, with our holdings continuing to deliver more impressive dividend growth than the pedestrian progress more commonly associated with the sector. American Water Works raised its dividend by 10%, in line with the last two years. Republic Services, the US leader in recycling and waste management, reported a 5% increase. Energy infrastructure was another source of reliable dividends as our holdings continued to pay dividends at prior levels. Union Pacific, the US railroads company, maintained its dividend in transportation infrastructure.
The exposure to energy infrastructure and transport was trimmed back after our holdings recovered strongly in
‘Social’ infrastructure also proved dependable as a source of steady growth. International Public Partnerships (INPP) and HICL Infrastructure announced dividend increases which were broadly in line with inflation, as expected. SDCL Energy Efficiency Trust remains on track to grow the dividend by 10% in the current financial year.
the early stages of the market rebound. The weightings in communications and social infrastructure were also reduced, having performed well across the market’s ups and downs.
‘Evolving’ infrastructure provided a more exciting source of growth, with American Tower being the standout. The owner and operator of communication towers has raised
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its dividend every quarter this year with an annualised growth rate of 20%. Industry peer Crown Castle increased its dividend by 11%. The fund was not immune to dividend cuts, however, particularly in airports where the operating environment has been extremely challenging. Dividends from airport companies are under pressure in the short term, and our pure airport plays, Sydney Airport and Flughafen Zurich, have temporarily suspended their payments. Vinci and Ferrovial also have airports businesses, and Vinci has cut its dividend. It would be reasonable to expect Ferrovial to follow suit. We continue to have conviction in the long-term prospects of these companies as owners and operators of strategic assets and have no intention of selling out of these holdings on a tactical basis. We have faith in their commitment to reinstate dividends and resume dividend growth at the appropriate time. In these unprecedented times, we remain supportive as long-term shareholders. While a dividend cut should never be taken lightly, these disappointments were outliers in a 47-stock portfolio. The majority of holdings continued to deliver stable or rising dividends in an extreme environment, as a result of which the fund delivered on its objective of growing the income stream during the first six months of the current financial year ending 31 March 2021. The distribution for the first two fiscal quarters rose 27% compared to last year (GBP I Inc shares) (see Figure 4). Figure 4. Quarterly distributions of the M&G Global Listed Infrastructure Fund*
Source: M&G, 1 October 2020. * GBP I Inc share class. Past performance is not a guide to future performance.
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ESG INTEGRATION The analysis of environmental, social and governance (ESG) issues has been an integral part of the investment process since inception of the fund because there are risks and considerations associated with listed infrastructure that are unique to the asset class. We are investing in companies with physical assets which are by their very nature immovable and have an impact on a variety of stakeholders including employees, customers, shareholders and wider society. Our ESG process is designed to assess the sustainability of assets and thereby ensure that the cashflows generated by the infrastructure businesses in which we are investing are sustainable and have the potential to grow over the long term. We need to make sure that our favoured businesses do not face ‘stranded asset’ risk or lose their social licence to operate. Proprietary research is central to our ESG analysis. We do not subscribe to the blind acceptance of third-party rankings or the mechanical exclusion of poorly rated companies. Take Republic Services, for example. The US leader in recycling and waste management provides essential services for society, but its landfill assets and associated greenhouse gas (GHG) emissions were given what we considered to be simplistic treatment by third-party ESG ratings providers. Prior to the fund’s launch in October 2017, Republic Services was rated CCC by MSCI ESG. For us, the low rating was not a sufficient reason to dismiss the company as a potential investment candidate; it merely prompted us to conduct our own due diligence and engage the company on ESG issues. Following a series of ESG-focused meetings with the company in conjunction with M&G’s Corporate Finance and Stewardship team, we gained comfort that the company is being managed in a responsible manner: Republic Services has adopted pioneering technologies to reduce by-products and increase the recycling of landfill gas wherever and as much as possible. We invested in the company at the fund’s launch and the investment has made a positive contribution: the dividend has increased every year in the 5-10% range and the share price has climbed 30%. We are pleased that we did not miss out because of a poor third-party ESG rating at the outset. Figure 5. ESG integration
We would be wary of extrapolating this growth rate for the remainder of the year, but we remain confident that the vast majority of our holdings can keep growing their dividends in the core 5-10% range. The fund remains on track to deliver on its objective of providing a rising income stream for the full year. The fund holds a small number of investments, and therefore a fall in the value of a single investment may have a greater impact than if it held a larger number of investments.
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Source: MSCI ESG, 25 August 2020. Past performance is not a guide to future performance.
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The company’s progress is also reflected in ESG ratings. MSCI ESG has upgraded Republic Services on two occasions in the past three years in recognition of the significant improvement in its GHG profile (see Figure 5). The company’s ESG journey does not end there. The promising direction of travel is also reflected in the company’s commitment to clearly defined sustainability goals. Having achieved its 2018 targets, Republic Services has embarked on a more ambitious strategy with seven sustainability goals aligned with the United Nations’ Sustainable Development Goals (SDGs), including the aggressive reduction of GHG emissions and a continued increase in recycling. The stock remains a core holding. OUTLOOK Governments around the world have announced huge fiscal stimulus packages in response to the global pandemic, including higher spending on infrastructure, which may provide a favourable backdrop. Europe’s recovery plan has been notable, not only for its scale and ambition but also the prominence attached to its green agenda. ‘Next Generation EU’ has a clear policy of promoting renewable energy and clean transport, as well as the renovation and efficiency of buildings and infrastructure to support a more circular economy. Digital infrastructure is another area receiving more investment as Europe strives to improve connectivity in a digital age, with the rapid deployment of 5G networks high on the priority list. Companies exposed to these structural growth trends can prosper to the benefit of their stakeholders, which include employees, customers, shareholders and broader society. Infrastructure investment has been a key feature of economic stimulus packages in Europe, China and Japan, but the major economy where this has been notably absent is the US – ironically, the country that probably needs it most. The need to repair, modernise and expand America’s ailing infrastructure is one of the few areas of common ground between the Republicans and Democrats. The fact that Donald Trump was unable to implement a much needed Figure 6. Multi-decade growth trends with examples of potential beneficiaries in the fund
Source: M&G October 2020.
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infrastructure plan during his presidency provided much frustration for both sides of the political divide. That said, decisions on infrastructure spending in the US remain in the hands individual states for the most part, although federal initiatives in the form of state subsidies and tax incentives will be widely welcomed. A Biden victory, which looks all but certain at the time of writing, is also expected to add impetus to renewable energy deployments, given his upfront green agenda. His plan ‘to build a modern, sustainable infrastructure and an equitable clean energy future’ comes with two specific targets: net zero carbon emissions by 2050 and $2 trillion investment in infrastructure. Our long-term approach to listed infrastructure is not reliant on fiscal expansion continuing or government initiatives having an immediate impact on economic growth, but we are also conscious that this type of dynamic can drive strong performance for the asset class. Fiscal stimulus is likely to remain a topical issue until the global economy is on a firmer footing, but it is also important not to lose sight of the fact that listed infrastructure is a beneficiary of powerful trends which we believe are likely to be more enduring. Thematic tailwinds such as renewable energy, clean transportation and digital connectivity are likely to persist for many decades to come, in our view (see Figure 6). That said, we remain vigilant about the immediate outlook. We are acutely aware that growth is fragile in many parts of the global economy and therefore that dividends will continue to be tested. We cannot dismiss the potential for more dividend retrenchment as the year progresses. With this reality in mind, we believe that the fund is better placed after our efforts to strengthen the income stream with more reliable growth from selected utilities. We continue to invest with a long-term view and remain confident that the portfolio is in good shape not only to weather the current uncertainty, but to capture attractive growth over the long term. Having passed the three-year milestone, we are even more excited about the next three years. We are optimistic as we have ever been about the long-term growth opportunities in listed infrastructure. Celebrating three years of M&G Global Listed Infrastructure Fund Check out this video update from Alex Araujo, Fund Manager, in which he highlights the fund’s performance to date and outlines the team’s unique investment approach in which ESG issues are an integral part. He also discusses how Covid-19 has affected the fund and where he sees particularly exciting opportunities for returns by investing in infrastructure businesses. https://vimeo.com/477950068
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CASE STU DY
December 2020
INVESTING IN THE PHYSICAL NETWORKS THAT ENABLE OUR
DIGITAL SOCIETY Equinix owns and operates data centres around the world and is a beneficiary of the structural demand for data globally. The company is one of the holdings in the M&G Global Listed Infrastructure Fund portfolio.
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he proliferation of data in today’s modern society is driven by the development of technology, including e-commerce, cloudbased applications, connected devices and the internet of things (IoT), but this insatiable appetite can only be met by the support of highly connected physical infrastructure assets such as data centres. Data centres perform a critical function in the digital economy. They provide an indirect way of accessing the high growth potential of companies such as Amazon.com, Microsoft and Google whose business models are reliant on data centres for their long-term growth and success.
also mission critical. For example, the payments company Visa experienced a network failure in June 2018, resulting in millions of transactions being declined, the issue being attributed to a glitch at one of its data centres. Equinix has a global reach with more than 200 data centres spread across 24 countries and benefits from a business model with high recurring revenues. The company is classified as a real estate investment trust (REIT) and as such can be susceptible to short-term negative sentiment when interest-rate sensitives are out of favour, but our investment case is based on the structural growth in the industry which is reflected in the strong growth in profits and dividends that the company has delivered over time.
Location is key for the customer and provides a barrier to entry. Security, reliable power supply and functionality are
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LISTED INFRASTRUCTURE
IN A WORLD OF
INFLATION
Why a resolute focus on long-term growth puts the fund in a strong position to benefit from inflation as well as powerful themes of long-term structural trends
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he global economy is showing early signs of a recovery and although the outlook remains uncertain, many investors are starting to think about a world beyond COVID-19 – where the outcome of significant fiscal stimulus is the return of inflation. How would listed infrastructure fare against a backdrop of higher bond yields and rising interest-rate expectations?
But inflation is not the only source of growth. Listed infrastructure is a beneficiary of long-term structural trends, such as renewable energy, digital connectivity and demographics – powerful themes which we believe will endure for many decades to come.
While the asset class has historically shown a degree of sensitivity to movements in the bond markets in the short term, we expect the long-term effects for our growth-focused strategy to be considerably different. We welcome inflation. We welcome a world of controlled economic growth with gently rising inflation which provides many listed infrastructure companies, whether directly or indirectly, with a vital source of growth. Inflation-linked revenue is a key feature of the asset class and a key driver of the growing cashflows and dividends we seek.
We welcome a world of controlled economic growth with gently rising inflation which provides many listed infrastructure companies, whether directly or indirectly, with a vital source of growth
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The exposure to structural growth is most apparent in our ‘evolving’ category of infrastructure which includes communications and transactional infrastructure. The importance of digital infrastructure came to the fore during lockdown as millions of people around the world were forced to work remotely and entertain themselves at home, but there are other long-term themes at play, namely the proliferation of data in our increasingly digital world. Transactional infrastructure continues to benefit from the structural growth in payment networks. The long-term shift away from cash transactions to digital and card payments has not only remained intact during lockdown but may even accelerate due to changes in consumer behaviour. ‘Evolving’ infrastructure’s faster growth and the diversification benefits it can provide is illustrated in the analysis below.
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We have stress-tested our investible universe – 250 companies which meet our criteria of physical infrastructure assets, dividend discipline and sustainability – in a scenario of rising interest rates. The analysis shows the effect of a 100 basis point shift in the yield curve (propagated) on investment performance. The biggest impact is at the short end as negative sentiment weighs on the defensive areas of ‘economic’ and ‘social’ infrastructure, while ‘evolving’ infrastructure holds its own – thereby demonstrating its qualities as an effective diversifier. As we look further out, rising rates have a positive impact for perfectly logical reasons: rates go up because economic activity and inflation are on the rise, which means more traffic through toll roads and more passengers at airports, as well as more cashflows from inflation-linked revenues. The results of this stress-test would look very different for a strategy which is focused on delivering a high yield without prioritising growth. While bond proxies are likely to suffer in an environment of rising rates, our approach is designed to benefit from inflation – because of our resolute focus on long-term growth.
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MEET THE
MANAGER IFA Magazine talks to Alex Araujo, fund manager, M&G Global Listed Infrastructure Fund, to find out how he is positioning the fund during these Covid times and where he sees the biggest threats and opportunities to performance for 2021 and beyond.
IFAM: HOW HAS THE PORTFOLIO BEEN AFFECTED BY THE COVID-19 PANDEMIC DURING 2020? A A: As you’d expect, there are winners and losers across the three categories of infrastructure in which we invest. The major impact of the lockdown was in ‘economic’ infrastructure, where the use of transportation infrastructure effectively came to a halt. There was a knee-jerk reaction in the market which we used to our advantage with our long-term investment horizon. Energy infrastructure was another area under pressure. The OPEC supply shock added to a challenging backdrop created by a collapse in demand for hydrocarbons. Utility businesses, by contrast, were highly reliable and consistent throughout the difficult period. When it comes to winners, we’re looking for businesses which can continue to generate increasing earnings, cash flow and dividends. The utilities sector is the only sector where earnings are still growing. That said, the market is forward looking and the huge fiscal stimulus packages announced by governments around the world led to a swift reappraisal of how some areas of listed infrastructure were perceived. We started to see a significant rebound in transportation infrastructure including airports
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in anticipation of people starting to fly again. Energy infrastructure also experienced a similar rebound. However, as the second wave has started to hit, it leaves us with an open question as to when we might return to a more normal environment and more specific ones such as what the future holds for the likes of airports etc. as they remain structurally challenged for the short and medium term. ‘Social’ infrastructure was very stable and consistent through the lockdown, similar to the utilities sector, so I would expect this category to underperform as and when the Covid environment eventually loosens again, although the need for hospital infrastructure is very clear. There are structural growth opportunities in this segment and we maintain our exposure, albeit at the lower end of our typical allocation range. In ‘evolving’ infrastructure, there has been a lot of excitement about communications infrastructure during lockdown given the obvious need for digital infrastructure, whether it’s mobile infrastructure, broadband or data centres, but this is not just about lockdown. This is a structural growth opportunity and we are absolutely bullish on this. Transactional infrastructure took a bit of a step back during lockdown just on the payments infrastructure
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side, but that is rebounding quickly, as are the royalty businesses. This is why we have the flexibility to invest across the three categories and the various sectors to take advantage of opportunities from a timing point of view when equities come under pressure and we are able to take advantage of the rebound. IFAM: HOW DO YOU SEE THE SECOND WAVE OF COVID-19 AFFECTING THE PORTFOLIO? A A: In ‘economic’ infrastructure, transportation businesses face difficulties once again and potentially energy infrastructure businesses. During March these stocks came under significant pressure, but we added selectively and aggressively in some cases to holdings we had confidence in. On the rebound which followed, the re-rating of these equity values took the weights of these sectors to quite high levels. What we have been doing is to manage those exposures and bring them back so that gives us some protection. Our much higher utilities exposure, while generating reliable dividend income, also provides a defensive backdrop. I don’t want to underplay the benefit that volatility can bring. We are a long-term minded investment strategy so if the market in its panic wants to de-rate equity values excessively, we will take advantage. It’s a matter of position sizing and having the appropriate sector weight through periods of volatility. IFAM: IN THE AFTERMATH OF THE US ELECTION RESULT, DO YOU SEE A BIDEN PRESIDENCY ENCOURAGING LONG TERM INVESTMENT IN THE ASSET CLASS? A A: Infrastructure plays a crucial role as the backbone of the US economy, yet a prolonged period of underinvestment in essential services – from water and electricity to highways and airports – has left its critical assets creaking at the seams. Biden’s plan ‘to build a modern, sustainable infrastructure and an equitable clean energy future’ comes with two specific targets: net zero carbon emissions by 2050 and US$2 trillion investment in infrastructure during Biden’s presidency. Even before the election, private enterprise and regional utilities had been investing in green opportunities. The potential for renewable energy deployments in the US is
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enormous compared to other parts of the world. With renewable energy capacity only half that of Europe and dwarfed by China, the US has some catching up to do. Higher infrastructure spending in the US provides a potential tailwind across the spectrum of infrastructure sectors. That said, the attractions of the asset class do not hinge on US infrastructure programmes coming to fruition. Renewable energy, clean transportation, digital connectivity, water and waste management, social and demographic shifts are all enduring structural trends. Take digital infrastructure, for example, whose critical importance came to the fore during lockdown, as millions of people were forced to work remotely and entertain themselves at home. Whether or not digital infrastructure features in fiscal stimulus packages, the proliferation of data in our increasingly digital world means the need for communication towers and data centres looks set to only rise. We strongly believe that listed infrastructure benefits from powerful structural themes that can drive growth for decades to come thereby providing sound long-term investment opportunities. IFAM: WE HAVE SEEN AN INCREASING NUMBER OF DIVIDEND CUTS DRIVEN BY POLITICAL REASONS. HOW DO YOU HANDLE THOSE? A A: A couple of dividend suspensions in the fund were politically motivated. I would highlight Flughafen Zurich which, in our mind, did not need to cut the dividend, but given the bailout of airlines which were primary customers of the airport, it was difficult to be seen as passing on those subsidies to its shareholders in the form of dividends. The company has therefore temporarily suspended the dividend, but I expect that it will very capably reinstate the dividend at an appropriate time. The language around Sydney Airport’s dividend suspension was similar in the sense that it was the right thing to do. We understand the reasons for the actions taken and we will assess the outcome for these airport companies as the situation develops. Unite Group’s dividend cut was also the right thing to do, in our view, after the student accommodation provider decided to forgo revenue despite contractual rights to rent. PrairieSky Royalty’s cut was a prudent measure reflecting
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the new realities of the energy sector, not in any way reflecting balance sheet strain as the company carries zero debt. Both companies remain committed to long-term dividend growth. In general, we would look to sell a stock if the company had no intention of reinstating the dividend or returning to a path of dividend growth, but none of these holdings fall into that category. IFAM: ARE CURRENT VALUATIONS JUSTIFIED GIVEN THE LACK OF VISIBILITY IN EARNINGS AND THE MARKET VOLATILITY? A A: As a listed infrastructure strategy we invest in reliable revenue and cashflow streams, the most critical element of that being revenues and cashflows which are completely independent of the economic backdrop, especially those derived from utilities. In terms of reliability of earnings, utilities are the only bastion of strength in the market at the moment with earnings expectations going up and for that reason we have been increasing our exposure to utilities which now stands at the highest weighting we have ever seen in the strategy at 37%. To put that into context, utilities account for just over 3% of the MSCI ACWI Index. It’s really about capitalising on the reliability of revenue and cashflow streams and therefore dividend growth to meet our objective of growing the income stream. There are other areas of the strategy which are dependable such as ‘social’ infrastructure where the revenue streams are paid regardless of whether the facilities are being used, for instance, civic infrastructure or educational infrastructure where the revenues continue despite being shut down. This asset class tends to be resilient. There is economic exposure from transportation infrastructure, for example, but we want that exposure for long-term growth. Valuations vary by sector. In utilities, we have seen earnings revised higher, yet we haven’t seen a proportional increase
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in prices, so we have an attractive valuation proposition in the largest part of the portfolio. There are other areas of the strategy where valuations are depressed. I would highlight energy infrastructure and certain parts of transportation infrastructure, and we have appropriate weightings in those areas. This is where active management comes into play as we take advantage of relative valuation opportunities in the fund and rotate capital accordingly. IFAM: TO WHAT EXTENT ARE RETURNS FROM LISTED INFRASTRUCTURE DEPENDENT ON LOW RATES A A: In the long term, it shouldn’t matter, but in the short term, listed infrastructure can be influenced by volatility in the bond market. Because of our focus on long-term growth, we are indifferent towards rates in the short term. If we were just investing in businesses with a high yield and no growth, I would give you a different answer because we would be exposed to the bond-proxy type behaviour from those kinds of stocks when rates move higher. When we have seen volatility in listed infrastructure around bond market episodes, we have taken advantage of those opportunities because over the long term we want to see a growing economy that benefits the companies we are investing in, that comes with some inflation and some gentle rise in interest rates. All of that is welcome to us and to the businesses we are invested in for the fund. IFAM: DOES THE PORTFOLIO HAVE ANY GEOGRAPHIC BIAS OR AVERSION? A A: Regional weightings are not determined by a topdown view and are mainly an outcome of bottom-up stock selection. They are also a function of our investible universe and the types of companies we are willing to invest in, taking into account physical asset, progressive
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dividend, strong governance and management. North America features highly for a number of reasons. It’s a deep market where we find many companies that meet our criteria. It is the only area of the world where we can find listed energy infrastructure businesses and one of the few areas where we can find listed communications infrastructure businesses. As a result, roughly half of the portfolio is exposed to North America. This is mainly an outcome. We also have a bias towards developed markets, simply because of the high-quality governance and dividend growth that we look for. We are also conscious of volatility and therefore careful about having too much exposure to emerging markets. We are mainly developed market-focused with mainstream currencies to deliver a rising income stream in sterling from a global portfolio of listed infrastructure businesses. IFAM: WHAT ARE YOUR EXPECTATIONS FOR THE FUND’S DISTRIBUTION? A A: There is still uncertainty about the economic recovery and various elements of listed infrastructure, but we took some significant action to increase the reliability of income and income growth in the portfolio by way of our initiatives in the utilities sector. Consequently, the fund’s distribution for the first half of the current fiscal year ending 31 March 2021 increased more than 20% compared to last year, although we would be wary of extrapolating this growth rate. When we model everything through with conservative assumptions, our expectation – and this is an expectation, not a promise – is that the typical dividend growth of 5-10% has moved down to 0-5%. We remain committed to the objective of growing the distribution in the current fiscal year.
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M&G Global Listed Infrastructure Fund Update: https://vimeo.com/470669334
About Alex Araujo Alex Araujo has been the manager of the M&G Global Listed Infrastructure Fund since it launched in October 2017, and was appointed manager of the M&G Global Themes Fund in January 2019. Alex initially joined M&G’s income team in July 2015 and became co-deputy manager of the M&G Global Dividend Fund in April 2016. Alex has 25 years of experience in financial markets. He graduated from the University of Toronto with an MA in economics and is a CFA charterholder.
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WHY INFRASTRUCTURE WILL BE KEY TO A
‘GREEN’ RECOVERY Alex Araujo, fund manager at M&G Investments
A
longside their immediate priority to protect health, governments around the world are looking to ensure that the pandemic does not do irreversible damage to the global economy. Huge fiscal stimulus packages, amounting to trillions of US dollars, have been pledged in 2020 to try and prevent a protracted recession. Infrastructure investment is high on the agenda, not only because it can lay the foundations for long-term economic growth but also because it is essential. Indeed, the need to reverse decades of chronic underinvestment in US infrastructure is one of the few things that presidential candidates Donald Trump and Joe Biden agreed on. As the urgency to move towards a zero-carbon economy has grown, the requirement for new and improved infrastructure has come into focus. I believe that calls for a ‘green’ recovery will only accelerate investment in solutions that support the low carbon transition.
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BUILDING BACK BETTER’ In Europe, the issue of sustainability is central to the €750 billion “Next Generation EU” recovery plan, which promotes investments that help cut greenhouse gas emissions and advance renewable energy and energy efficiency. It is hoped that large-scale public investment, combined with regulatory changes, will galvanise the private sector investment needed for the bloc to reach its goal of being climate neutral by 2050, in line with 2015 Paris Agreement commitments. The infrastructure built today will determine whether climate targets are met. After all, the OECD estimates that more than 60% of global greenhouse gas emissions are related to physical infrastructure . A transformation of the systems that form the backbone of modern society is therefore urgently needed. To meet the climate and development objectives articulated in the UN
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Sustainable Development Goals (SDGs), the OECD has estimated that US$6.9 trillion needs to be invested each year until 2030. THE NEED FOR CLEANER ENERGY It is unsurprising that the energy sector is a top priority for decarbonisation, given power generation accounts for around 40% of global CO2 emissions. Encouragingly, the shift away from burning coal, the most polluting fossil fuel, makes economic sense. The cost of wind and solar electricity generation has tumbled over the past decade, relying ever less on subsidies to be competitive. According to the International Renewable Energy Agency, replacing much existing coal-fired capacity with new solar farms would very quickly pay for itself. Yet the scale of the challenge is enormous, especially as global demand for electricity is set to keep rising. The International Energy Agency estimates that around US$1.3 trillion a year needs to be invested if SDG 7 – affordable and clean energy for all – is to be achieved by 2030.
The cost of wind and solar electricity generation has tumbled over the past decade, relying ever less on subsidies to be competitive
THE CALL FOR BETTER CONNECTIVITY Low-carbon electricity is a cornerstone too for more sustainable transport, which accounts for around onequarter of global CO2 emissions. Beyond electric cars, the long-term trend towards growing urban populations creates a need – and an opportunity – for efficient mass transit systems.
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The experience of the coronavirus pandemic has also revealed the critical importance of the infrastructure that connects us digitally. Without the network of data centres, masts and cables, the ‘work from home’ economy would not have been possible. Digital infrastructure can also be a ‘green enabler’, in the sense that better digital connections can reduce the need for travel and improve access to opportunities. Further investment is needed to enhance digital connectivity, which is a key ingredient to meeting SDG 9 – building resilient infrastructure, and promoting inclusive and sustainable industrialisation.
The experience of the coronavirus pandemic has also revealed the critical importance of the infrastructure that connects us digitally
OPPORTUNITIES IN THE ‘GREEN’ RECOVERY Commitments to invest in a ‘green’ recovery should prove to be a powerful tailwind for companies that own and develop physical infrastructure assets, like wind farms, solar parks and electricity grids, all of which are necessary to transition to a lower carbon future. Likewise, businesses that own the digital infrastructure on which modern economies depend. I believe infrastructure companies exposed to the structural shift towards a more sustainable economy are potentially well placed to prosper for decades to come.
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INVESTING IN THE ROAD TO
ZERO CARBON Engaging with renewable energy champions on both sides of the Atlantic
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mong the core holdings in the M&G Global Listed Infrastructure Fund are NextEra Energy and Enel, two companies at the vanguard of renewable energy deployments. The critical nature of the underlying assets epitomises the attractions of infrastructure as an asset class, while the structural growth in renewables provides a powerful long-term tailwind for companies addressing climate change.
way of its focus on clean sources of energy, customers by way of a reliable service and lower costs, and shareholders by way of consistently rising cashflows and dividends. We invested in NextEra Energy at the fund’s launch in October 2017 and we have been duly rewarded with higher dividends and a higher share price. Past performance is not a guide to future performance. ENEL
NEXTERA ENERGY NextEra Energy is a US utility company which ranks as the world’s largest producer of wind and solar energy. With a broad geographic footprint across the US, NextEra Energy is the nation’s leading provider of clean energy including natural gas, a key transition fuel for the reduction of carbon emissions. It is also a market leader in energy storage, with more capacity than any other company in the US, to improve the efficiency of energy use. Sustainability is at the core of the company’s strategy to benefit a broad range of stakeholders: the environment by
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Enel, the Italian utility, shares the same philosophy of sustainable growth, with a vision of becoming a ‘super major’ in renewables over the next decade. Enel is a domestic champion but also a global company with a significant presence in the long-term growth markets of South America. Enel’s strategy combines significant and growing investment in renewables with an acceleration in decarbonisation by way of phasing out coal. Renewables capacity is expected to triple over the next 10 years, with renewables accounting for more than 80% of group power generation capacity in 2030, up from 55% today.
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Enabling the development of electric mobility is another key initiative, with Enel embarking upon the single largest deployment of charging stations in Europe. The company is proposing to increase the number of charging stations across the group by more than fourfold over the next three years, from 175,000 today to 780,000 in 2023. Charging points for electric buses is expected to increase by a multiple of six over the same period to support cities in their path towards sustainability. Enel also has a clear commitment to returning cash to shareholders. The company’s guidance for dividend growth over the next three years is approximately 7% per annum. We invested in Enel in June 2018 when concerns about the political and fiscal situation in Italy led to indiscriminate selling in the Italian stock market, particularly in the more interest-rate sensitive sectors. Enel’s business is not confined to the domestic market and we saw the sentiment-driven weakness as a buying opportunity. The stock was purchased on a historic yield of more than 5% with robust and reliable growth in the dividend stream.
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BUILDING THE MODERN WORLD As the backbone of the global economy, infrastructure plays a crucial role in development, and ultimately prosperity. Yet not enough is being invested in the assets that provide society’s essential services. That’s the view of Alex Araujo, Fund Manager at M&G Investments, as he argues the case for advisers to consider infrastructure investment as a global asset class which has breadth and depth as well as liquidity
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n the developed world, spending on the care, maintenance and expansion required for the adequacy of our existing infrastructure has fallen woefully short of the mark, leaving our critical assets creaking and bursting at the seams. We can all relate to this in our daily lives. Infrastructure investment in the G6 members – US, Canada, UK, Germany, France and Japan – has been in a multi-decade decline and the
current 3.5% of GDP is the lowest level since 1948 (see Figure 1). Today’s 70-year low is half the level it was at its peak in the 1960s – which also highlights the ageing nature of these assets. With government finances under pressure and limited expertise in the public sector, the private sector will play a significant role in the restoration and upgrade of our critical infrastructure.
FIGURE 1. Infrastructure spending in the developed world G6 Government Gross Investment as % of GDP 7%
6%
5%
4%
3%
2% 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2112 2017 2022
Source: BofAML, The Long View, 16 September 2018.
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Global spending on economic infrastructure, which covers transport, electricity, water and telecoms, was US$2.5 trillion in 2015. This contrasts sharply with the required amount of investment estimated at US$3.7 trillion per year (see Figure 2). The resulting US$1.2 trillion shortfall needs to be addressed to ensure that the world stays on its economic growth path.
60% of the demand. China alone makes up a third. From China and India to Latin America and Africa, building the infrastructure which is required to ensure higher living standards and support economic growth remains a work in progress. In the developed world, the US and Canada require the most investment, with 20% of the global target – double the amount required in Western Europe.
Investing the annual requirement of US$3.7 trillion to the year 2035 – a typical infrastructure investment cycle – would result in aggregate spending of around US$69.4 trillion. Owing to rapid urbanisation and fast-growing populations, emerging markets account for more than
The important role to be played by the private sector in addressing the infrastructure gap should create a meaningful tailwind for certain businesses. In particular, we believe that companies with existing physical infrastructure assets (which provide a strategic barrier to entry) and growth opportunities are best placed to earn a financial return on the required capital investments. Crucially, we invest in companies based on the quality of their assets and growth opportunities, not simply in order to follow an infrastructure ‘concept’.
FIGURE 2. The Infrastructure investment gap Global spending requirements for economic infrastructure 2017 – 2035 Annual deficit 2017 – 2035, US$ -$400bn
-$400bn
-$300bn
-$100bn
-$1.2trn
4.0
3.7
3.0
US$ trillion
2.5 2.0 1.5 1.1 1.0
1.1 0.5
0.0
Transport
Power
2015
Water
0.4 0.5
Telecom
IMPORTANT INFORMATION The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. TO FIND OUT MORE PLEASE VISIT: WWW.MANDG.CO.UK/INFRASTRUCTURE
0.8 0.2
In the developed world, the US and Canada require the most investment, with 20% of the global target – double the amount required in Western Europe.
Total
20-2035 per annum
Source: McKinsey, Bridging infrastructure gaps: Has the world made progress? October 2017
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THINKING
BIG Why evolving infrastructure can often be out of sight but should not be out of mind. It’s a powerful argument and one put forward by Alex Araujo, Fund Manager of M&G Global Listed Infrastructure Fund, as he reminds advisers of the investment potential offered by this dynamic asset class
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hen we think of infrastructure, large physical assets typically spring to mind. This is because the likes of airports, roads and power stations have physical footprints that shape the environment around us and our perceptions of it. However, our interaction with physical infrastructure goes well beyond the use of transport, energy and utilities. For example, the delivery of many public services like education and healthcare generally involves large buildings, such as hospitals, schools and university campuses. SUPPORTING THE DIGITAL REVOLUTION Less obvious perhaps is the infrastructure that facilitates the digital economy. It may not dominate the landscape like electricity pylons or ports, but the buildings and networks underpinning it are equally relied upon today.
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This is perhaps because many digital interactions have become so frictionless that we rarely think about the infrastructure supporting them. Yet behind each contactless payment, for instance, is a vast network of ‘rails’ connecting consumers, merchants, processors and banks. Even when the infrastructure enabling online activity has a large physical presence, it is often out of sight. When we stream videos on our mobile phones, it is unlikely that we spot the communication masts or underground optical fibre networks that transmit the data along our journey. Likewise, when we store digital documents and photos on ‘the cloud’ – where they are accessible wherever and whenever we might want them – how many of us spare a thought for the vast warehouse-like data centres that store and process our information? Each day, we depend on this unseen infrastructure – which I like to think of as ‘evolving’ infrastructure – every bit as much as we do on the more familiar infrastructure that forms the backbone of the traditional economy.
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INVESTMENT OPPORTUNITIES As a long-term investor in infrastructure, this part of the asset class holds great promise, in my view. I believe evolving infrastructure can often provide stronger structural growth than more traditional infrastructure assets. This is because it is used by fast-growing parts of the global economy – including communications, e-commerce and technology. It logically follows that more of this infrastructure will be needed increasingly over the coming years. The more we use our mobile devices to bank, shop and view content, the more phone masts will be needed to transmit the data – and, of course, the more data centres will be required to process it. Growing demand should present opportunities for patient investors.
The more we use our mobile devices to bank, shop and view content, the more phone masts will be needed to transmit the data – and, of course, the more data centres will be required to process it
One way to tap into this area of the market is to invest in the shares of companies that own or control this critical physical infrastructure. These companies generate income streams from their infrastructure assets, which are in
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turn distributed to their investors through dividends. Importantly, even though these assets are often unseen, their physical nature provides a strategic barrier to entry for would-be challengers, protecting the value of the income as well as that of the asset itself. Admittedly, the trajectory of evolving infrastructure assets, and the income generated from them, can be less predictable than that of some more traditional infrastructure assets. The likes of energy and water providers are typically better able to reliably churn out a consistent income from when you invest, given the established and resilient demand for their services. However, therein lays the opportunity offered by evolving infrastructure: if companies succeed in rapidly expanding parts of the infrastructure market, they can deliver exciting levels of growth over the long term. For this reason, I believe that infrastructure investors must be alive to the various opportunities offered by evolving infrastructure assets, even though they can easily go unnoticed in most people’s daily lives. IMPORTANT INFORMATION The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
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For Investment Professionals only
ESSENTIAL INFRASTRUCTURE FOR THE MODERN WORLD THE M&G GLOBAL LISTED INFRASTRUCTURE FUND BUILT BY M&G Capital at risk
For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776. AUG 19 / 382103
