Global Infrastructure Value Strategy April Commentary

Key Takeaways

• Our global listed infrastructure strategies outperformed global equities and relevant infrastructure benchmarks for the month, as elevated trade uncertainty weighed on sentiment.

• Easing inflation in the U.K. helped water utilities there perform well, while passenger traffic resilience helped European airports; U.S. rails and pipelines were weaker on tariff and recessionary concerns.

• 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.

Market Overview

Infrastructure outperformed global equities in April as the U.S. levied tariffs on most of its trading partners, causing a sharp spike in volatility. Many tariffs were lowered or delayed by month-end, although retaliatory tariffs and elevated trade uncertainty continued to weigh on sentiment. Against this backdrop, the listed infrastructure asset class exhibited defensiveness and provided downside protection for investors. The potential for tariffs to crimp international trade, raise costs for businesses and consumers and slow economic growth broadly, helped the more defensive regulated utilities sector outperform in April. 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. Easing inflation in the U.K. also helped water utilities there perform well.

Turning to European airports, we have not observed any meaningful changes to airline seat capacity scheduling ahead of the summer season as a result of Trump’s tariff war, and we continue to expect low- to mid-single-digit growth in passenger traffic compared to last year.

Meanwhile, slowing GDP in the U.S. and elevated recession concerns drove negative performance for U.S. rails, which are directly impacted by the tariffs. We are observing U.S.-bound freight from Chinese ports declining significantly since the trade escalation, and we expect intermodal volumes for U.S. rails to come under pressure in the near term until a trade deal with China is established.

Recession concerns have also dampened the sentiment for the oil and gas pipelines sector, which was a major beneficiary of the AI/data centre trade for most of 2024. We note OPEC’s announcement it would increase oil production in the coming months, and we expect this to continue to put pressure on oil prices. However, we also note that the midstream companies we invest in have long-term fee-based contracts with limited commodity price exposure, and in many cases, limited volumetric exposure. We remain constructive on the medium-term outlook for the sector, given the tailwinds of LNG exports, coal-to-gas switching, and increasing power demand driving the need for more baseload generation. Elsewhere, renewables continued to be weaker due to policy uncertainty, primarily in the U.S., where there remain concerns as to whether there will be changes to the renewables tax credits in Biden’s Inflation Reduction Act (IRA). We expect clarity in the coming months, as Congress navigates the budget reconciliation process.

Portfolio Highlights

Our global listed infrastructure strategies outperformed global equities and relevant infrastructure benchmarks for the month.

On a regional basis, Western Europe (+2.83%) was the top contributor for the month, with U.K. water company Severn Trent (+0.46%) and French airport operator Aeroports de Paris (+0.43%) the lead performers. Severn Trent (SVT) is a regulated U.K. water utility that provides water and wastewater services to Midlands and Wales, serving over 4.5 million households and businesses. U.K. utilities bounced back during April, after easing inflation prints, which benefit SVT.

Aeroports de Paris (ADP) owns and operates three airports in Paris — Charles de Gaulle, Orly and Le Bourget — as well as minority stakes in several global airport groups, including TAV in Turkey and Schiphol in Holland. ADP is currently in the planning and consultation phase for its proposed upgrades and expansions of its Paris Airport assets, where we expect an increase in the level of investments over the next decade. As part of that process, the company is evaluating the possibility of entering into a 10-year aeronautical tariff arrangement with airlines to backstop its investments. We believe the market is underappreciating the upside potential of higher allowed regulated returns, given the state’s support for the investments.

U.S. electric utility NextEra Energy (-0.25%) and U.S. energy infrastructure company ONEOK (-0.51%) were the largest detractors.

NextEra Energy (NextEra) is an integrated utility business with a regulated utility operating in Florida and is the largest wind business in the U.S. NextEra’s regulated business, including Florida Power & Light, serves nine million people in the State of Florida. NextEra’s share price fell due to uncertainty regarding the potential for IRA repeal. We will be monitoring developments in the coming months, starting with the budget reconciliation process, where we will see initial plans on tax and funding.

ONEOK (OKE) is one of the largest diversified energy infrastructure companies in the U.S., owning and operating an extensive network of natural gas liquids (NGL), natural gas, refined products and crude oil assets. ONEOK‘s underperformance in April was due to market uncertainty following OPEC’s decision to accelerate production increases, which put downward pressure on oil prices. If oil prices are lower for longer, this may incentivise production cuts from U.S. producers, particularly higher cost producers in basins such as the Bakken. While OKE is not directly exposed to changes in commodity prices, any volumetric reductions will translate to weaker fee revenues for the company. We will be monitoring developments in the coming months to assess whether any action is required but note that our medium-term thesis around M&A synergies and commercial upside remains intact.

There were no notable changes during the month

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.