Developed Markets Infrastructure Income Model Commentary June

Key Takeaways

• Listed infrastructure was resilient during the market volatility in April, strongly outperforming the broader market, and remained steady through May and June while equities recovered from the selloff.

• Interest rate cuts from the European Central Bank and policy support such as Germany’s fiscal stimulus, with its focus on infrastructure spending, were positive for European utilities and renewables.

• We remain somewhat defensively positioned, toward utilities, which we find undervalued as peak bond yields have resulted in multiples coming down, although the utilities themselves have very strong growth profiles driven by AI data centre power demand, industry decarbonisation and resiliency spending.

Market Overview

Markets bounced back from a first-quarter correction and survived tariff, growth and geopolitical scares to deliver solid gains in the second quarter of 2025. Stocks fell to begin the quarter after President Trump unveiled wide-ranging reciprocal tariffs on April 2 but recovered as a delay in their implementation, a handful of bilateral trade deals and a softened tone from Trump on both China and Federal Reserve policy improved the outlook. The U.S.-China trade picture continued to brighten in May and June, ending in an agreement involving lower tariffs and increased exports of rare earth metals from China to the U.S. In June, an apparent end to the 12-day conflict between Israel and Iran, which threatened to raise oil prices and disrupt global shipping, added further support for risk sentiment.

Listed infrastructure was resilient during the market volatility in April, strongly outperforming the broader market, and remained steady through May and June while equities recovered from the selloff.

On a regional level, Western Europe was the strongest performer, where interest rate cuts from the European Central Bank and policy support such as Germany’s fiscal stimulus, with its focus on infrastructure spending, were positive for European utilities and renewables. Inflation concerns, elevated interest rates and expectations that tax incentives for renewables in the Inflation Reduction Act would be curtailed by the Trump administration kept a lid on infrastructure gains in the U.S.

Portfolio Highlights

Our global listed infrastructure strategies underperformed global equities, though performed in line with relevant infrastructure benchmarks for the month.

On a regional basis, the U.S. and Canada (+0.41%) was the top contributor for the month, with U.S. renewables utility Brookfield Renewables Partners (+0.31%) the lead performer. Brookfield Renewables Partners (Brookfield) is a pure-play renewables operator and developer headquartered in Canada, focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield’s globally diversified, multi-technology renewables business makes Brookfield an attractive partner. Brookfield’s development pipeline stands at 18,000 MWs, providing confidence that the company can meet its targeted double-digit cashflow growth through to 2025. Brookfield’s share price strength was driven by their solid first quarter results, along with management's confident comments on the company’s growth outlook, in navigating policy uncertainties around IRA and trade tariffs, including strategies of safe-harbouring and diversifying the supply chain. Additionally, they benefit from the U.S. renewables sector getting more clarity on the IRA with the draft releases of the Reconciliation Bill.

Turning to Western Europe, U.K. electric utility SSE (+0.17%) also performed well.

SSE is a diversified energy utility headquartered in Scotland, U.K. It is vertically integrated, operating over the entire supply chain in the U.K., with generation (including hydro, wind, CCGT), electricity networks, and retail businesses (primarily B2B). It is the U.K.’s largest renewable energy generator. SSE’s share price rose with increased comfort around the limited impact from intra-zonal pricing.

Spanish airport operator AENA (-0.15%) and French airport operator Aeroports de Paris (-0.17%) were the largest detractors.

AENA is the monopoly owner of the Spanish airport system operating the 46 airports under a dual-till regulatory regime. AENA also manages London Luton Airport with a 51% stake.
Aeroports de Paris (ADP) owns and operates three airports in Paris, including Charles de Gaulle (CDG), Orly and Le Bourget, as well as minority stakes in several global airport groups, including TAV in Turkey and Schiphol in Holland.

Airport stocks were weaker during the month due to concerns around geopolitical tensions in the Middle East and the impact on travel. We do not believe any traffic impact will be meaningful, and see it as transitory.

During the month, we initiated a position U.S. renewables utility Clearway Energy. We also exited our position in U.S. electric utility Dominion.

All returns are in local currency.

Positioning and Outlook

While the current environment is marked by heightened volatility and uncertainty, we remain confident in our utility and infrastructure assets and their ability to generate defensive, consistent and growing cash flow streams for shareholders over the medium-to-long term. Another key benefit of infrastructure investing is the pass-through of inflation – approximately 90% of our portfolio continues to benefit from direct or indirect inflation pass-through mechanisms.

Currently, we remain somewhat defensively positioned, toward utilities. We find the sector undervalued at present, as peak bond yields have resulted in multiples coming down in that space, although the utilities themselves have very strong growth profiles, particularly in the U.S., driven by AI data centre power demand, industry decarbonisation and resiliency spending. At the same time, European utilities are getting more capex approved by regulators and are seeing returns tick up as well, providing robust long-term visibility in earnings growth. Further, in terms of tariffs, regulated utilities are largely insulated. Tariffs are unlikely to have a meaningful impact on utility earnings given they service domestic catchments with electricity, gas and water, and are not directly exposed to international trade. We believe infrastructure’s defensive characteristics and downside protection offer diversification in today’s uncertain market environment.