Global Listed Infrastructure Strategy: September 2020 Monthly Commentary

October 2020 - Delft Partners

In September markets retraced some of their gains from earlier in the quarter and the defensive nature of Infrastructure companies was again illustrated. The strategy rose a little over 2% in AUD$ in September while the benchmark for the fund rose 0.6%.

NTT DoCoMo, the mobile telephone and digital services provider in Japan, was the fund’s best performer rising 30% late in the month as a bid from the parent NTT for the minority shares was made. Telecoms earnings are unexciting but predictable, and this certainty around earnings and the certainty of returns from dividends, makes them very attractive, especially when much of the global government bond market has been driven to zero or negative real yields. We still have a bias towards companies with moderate operating leverage.

Other good portfolio performers were Nippon Gas in Japan, Northland Power and Algonquin in Canada, and Duke Energy in the USA. The last of these received a proposed bid from NextEra Energy, another fund holding, but management rebuffed the offer. There will be no hostile bid.

The portfolio’s worst performers were Equitrans, China Mobile, Softbank Corp (not to be confused with Softbank Group) and Veolia in France.

We are still under-weight the airport and railroad companies which need traffic and revenue growth to cover high operating overheads but have begun to invest in freight and logistics companies especially those operating in Asia.

In recognition of the likely elevated volatility of the market we are increasing the number of holdings to attain diversification and maintain portfolio volatility at low levels.

The strategy yields 5% and there are no signs that dividends are going to be cut. As the general 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; especially as both Democrats and Republicans have committed to a large renovation infrastructure spending programme.