Global Listed Infrastructure Strategy: June 2021 Monthly Commentary

The strategy returned -0.1% in US$ in June and 4% for the quarter. In A$ 3% and 5.5% respectively, as the A$ declined.

The backdrop to infrastructure order books remains positive globally. Infrastructure spending is a key focus of the Biden administration. The ‘physical infrastructure’ spending bill passed through Congress, amounting to about $1 trillion to be disbursed over several years. While President Biden has stated he will not sign this bill until, and unless, the next ‘soft’ infrastructure bill is passed, we think ‘realpolitik’ prevails and there will be a deal allowing the money to be disbursed regardless.

Economic activity appears robust in North America even without this new spending and we remain invested in companies more geared to economic activity than low interest rates - UNP, FDX, UPS, NSC.

Asia is seeing temporary headwinds from a resurgence of Covid, monetary and fiscal tightening by China and aggressive rhetoric toward Taiwan to coincide with the 100 year’s anniversary of the Chinese Communist Party. This too shall pass.

Given the zeitgeist demanding ’green’ energy, we favour gas utilities and pipelines for our utility investments. Oil and coal remain more vulnerable to legislation and lobbying.

For a considered approach to the costs and benefits of going green, please see www.iea.org

Ransomware attacks on physical infrastructure are now a clear risk and any new buildout will require technology to the fore. We emphasise the importance of digital infrastructure in our strategy and expressly include these software companies in our universe.

We continued to trim exposure to NYK in Japan, up another 10%, SITC in China also up another 10%, and China Longyuan Power also up about 20%.

We sold Dominion Energy in the US and reinvested in National Fuel Gas Company a US company operating in the natural gas space. The company trades on 14x EPS, 3.4% yield, and has raised its dividend for 51 years in a row.

In Europe we invested in Uniper a German based power company, majority owned by Fortum, the Finnish utility. With the majority of revenues soon to be coming from gas, and the planned divestment of coal fired power stations making progress, the cheap stock (0.2x EV / Sales, and a yield of 4.2%) looks to have little downside risk and to capture the trend amongst investors to favour low carbon emission companies. This was fortuitous timing as the stock rose 6% in the month as the hunt for cheap infrastructure stocks continues.

Listed Infrastructure companies represent an attractive way to obtain yield, inflation protection and portfolio flexibility from businesses which are vital to world economic growth.

Risk model analysis shows our portfolio to be very slightly exposed to interest rate increases relative to equities in general, but that our active risk positions are negatively exposed to interest rate increases. In other words, our portfolio should be more resilient than fixed income, if interest rates were to increase, and yet will provide some exposure to nominal economic growth.

The portfolio remains well diversified across sectors and geographies.

AOP July 2021

Delft Partners July 2021