Global Listed Infrastructure Strategy: August 2020

September 2020 - Delft Partners

In August World markets were focused on the USA, and more specifically the surge in technology stocks. As a result, Infrastructure sectors were relatively neglected. The MSCI Combined benchmark for the fund fell 1.89% in AUD$ terms. The Delft Global Infrastructure strategy declined 1.7% in AUD$ terms. It was another strong month for the Aussie dollar against the US dollar, gaining 2.7%.

Freenet AG, the telecoms provider in Germany, was the fund’s best performer +24% during the month after Liberty Global launched a takeover offer for Sunrise Communications. Freenet has a 24.4% stake in Sunrise. Should the deal go ahead, Freenet should receive EUR 1.126bn which will go a considerable way to cutting its debts. Deals like this highlight some of the overlooked value in companies like Freenet. Freenet also announced results in August which showed up the relative resiliency in Telecoms earnings and a reason why we like the sector relative to the Infrastructure universe.

The Air Freight & Logistics sector did well in August on the back of encouraging results from the sector as more online shopping provides more work for the likes of DHL, UPS, etc. The fund’s holding in Deutsche Post (Parent co of DHL) did well as a result. Other good portfolio performers were AES, Encavis and Equitrans Midstream.

The portfolio’s worst performer was Evergy, the Mid West USA energy provider after it announced it would not pursue a buyer for the whole company. Other laggards were Nippon Gas, Kunlun Energy, Duke Energy and Zhejiang Expressway.

The strategy is still positioned generally toward the more defensive side of the infrastructure universe, with underweight positions in the airport and railroad companies which need traffic and revenue growth to cover high operating overheads.

We initiated a small position in AT&T in August. This is a large company in our benchmark, has an almost 7% yield with decent cash flow coverage of that dividend. The purchase reflects our view that the media assets of the telecoms business are finally being rationalised and evaluated – both by management and by other parties. The subscriber platform for viewing is becoming crowded and AT&T have decent content but a terribly convoluted business model. Something is beginning to happen here.

The strategy yields 5% and there are no signs that dividends are going to be cut. As the equity market yield is now at derisory levels; and government bonds are more of a return free risk than a risk-free return, these stock look attractive to us.