Experts uncover the significant opportunities for investors as infrastructure looks set to reshape the future of the global economy.
What does investing in infrastructure in today’s market really involve? Traditionally, you might well think of it as investing in areas such as transportation, airports, utilities, pipelines etc. From the conversation during IFA Magazine’s December webinar, it’s clear that things have changed dramatically in the infrastructure arena in recent years. With much wider scope, the attractions of investing in infrastructure are clear to see for both growth and income investors.
During the webinar, experts in the Listed Infrastructure space joined Chair Ryan Hughes, Head of Investment Research at AJ Bell, to discuss he various opportunities for investors in this important sector. The webinar was a popular choice with IFA Magazine viewers with many tuning in live to hear the powerful debate.
Speaking to Hughes during the webinar were Alex Araujo, manager of the M&G Investments Global Listed Infrastructure Fund and Matthew Norris, Head of Real Estate Securities at Gravis Capital and lead adviser on the VT Gravis Digital Infrastructure Income Fund.
Solutions for an evolving world
For advisers and wealth managers who might have adopted the more traditional view of infrastructure investing, this discussion is a must view. With insightful questions from Hughes leading to equally insightful responses from Norris and Araujo, the panel explored in detail how the global economy and the world of business have changed in line with our evolving lifestyles and needs as consumers.
However, hearing from two experts in the sector about how the businesses which underpin these changes are creating such wide ranging investment opportunities, demonstrates how some updated thinking is required when it comes to stock selection and asset allocation. Their discussion ranged from how matters of sustainability and ESG can impact upon listed infrastructure stocks right through to which fund structures were most appropriate to gain exposure to the sector.
For Ryan Hughes it was a really enjoyable discussion which covered a lot of ground on infrastructure investing as he commented “for me, a key take away was that both managers highlighted how the world of infrastructure investing has and continues to evolve with a broader view of what constitutes infrastructure, particularly as we change the way we live our lives. Other key areas such a regulation change, the impact of COP26 and the ability to deliver a growing income stream all highlighted the investment attractions of infrastructure and how they can benefit a portfolio.”
Discussing a variety of issues relating to investing in this increasingly attractive sector, panellists drilled down in some detail into how the investment universe for this sector has shifted so dramatically over the past decade or so.
The importance of digital infrastructure
Today’s increasingly digital world has generated huge growth in the demand for and supply of digital infrastructure which presents particular attractions and investment opportunities. It was just one of many reasons that both Norris and Araujo gave for why they are so positive about the prospects for investment in listed infrastructure as the global economy transitions to a new way of working. Hearing them explain some of the ways this can be harnessed for the benefit of society, businesses as well as investors and where they see the threats and opportunities for investors looking for growth and income was particularly informative and enlightening.
Norris and Araujo explained how the sector has moved on from traditional/core infrastructure investing and how the growing need for data has transformed so many sectors and businesses in the digital infrastructure arena in particular. Areas such as the integration of 5G mobile internet and the explosive growth in online shopping were highlighted as underpinning just some of the opportunities for growth.
As Norris commented “these are key assets which enable modern society to operate. The fastest rate of growth is happening within the digital part of the market and there are some great companies out there to invest in.” He explained: “It’s exciting as we’re investing in the global leaders of the digital revolution and there’s great opportunity to be had.
At Gravis, we’ve already had a fantastic start to the fund’s life as within six months, private equity has bought two of the companies held within the fund. If you look at the drivers of digital infrastructure, notably data consumption and production storage exploding, these are set to more than double in the next three or four years. Data consumption in developed markets is set to go to through the roof. If you look at the mobile internet and the rollout of 5G, there are huge opportunities to densify the network and that’s good news for the infrastructure owners of course. If we look at online shopping in the UK, we have 28% penetration by e-commerce as a percentage of retail sales at home that we thought would take five more years to get to that level. The pandemic has brought about massive acceleration of this change. In the US it’s around 22% whilst Continental Europe is only in the mid-teens. There really are lots of opportunities to go for.”
In a detailed analysis of how sustainability, COP 26 and climate change are impacting the sector, Araujo even confessed to panicking to a degree about the impacts which climate change is having and how resilience to this is such an important factor when it comes to due diligence and stock selection within infrastructure funds.
A different equity market investment
n looking to highlight the particular attractions of the sector for investors, Araujo said “For a multi-asset investor, Global Listed Infrastructure is perhaps a differentiated equity market investment. It’s still equities and still subject to some volatility, but with different characteristics. There is obviously the income component and the income growth feature that’s very important in investing in an asset class that has longevity, that’s driven by thematic structural opportunity sets. In addition to renewable energy, there’s the changing face of transportation. There’s digital infrastructure, there’s social and demographic shifts. There are so many different themes that are driving this asset class over the long term. What I look for is a consistent, reliable generator of steady business performance with both income and income growth at its heart. That’s somewhat differentiated from other elements of the equity market that might grab the news headlines from time to time. On balance, what you can get is lower volatility in difficult markets from this asset class.”
Catch up with the conversation
If you missed the live event or you’d like to view it again, you can now tune in to the discussion which highlights some of the exciting prospects it offers for growth and income investors.
Ryan Hughes, Head of Investment Research at AJ Bell
Ryan started his career in 1999 working for an IFA, progressing to become Head of Portfolio Management at an award-winning advisory firm. Ryan then joined a global asset management firm as a Fund Manager, where he oversaw more than £10bn of multi-asset portfolios and also sat on the investment and global asset allocation committees. After seven years, Ryan joined a small multi-asset boutique managing portfolios for clients all around the world, before joining AJ Bell in 2016 to help establish its investment capability. As Head of Investment Research, Ryan now oversees all investment research for AJ Bell.
Alex Araujo, manager of the “M&G Global Listed Infrastructure Fund” & “M&G Global Themes Fund”
Alex Araujo joined M&G’s equity income team in July 2015 and became co-deputy manager of the M&G Global Dividend Fund in April 2016. He has been manager of the M&G Global Listed Infrastructure Fund since it was launched in October 2017, and was appointed manager of the M&G Global Themes Fund in January 2019.
Alex has 25 years of experience in financial markets, having previously worked at UBS and BMO Financial Group. He graduated from the University of Toronto with an MA in economics and is a CFA charterholder.
Matthew Norris, Fund Manager and Director of Real Estate Securities at Gravis Capital
Matthew is responsible for the oversight of the VT Gravis UK Listed Property Fund and the VT Gravis Digital Infrastructure Income Fund.
Matthew has more than two decades investment management experience and has a specialist focus on real estate securities. He served as an Executive Director of Grosvenor Europe where he was responsible for global real estate securities strategies. He joined Grosvenor following roles managing equity funds at Fulcrum Asset Management and Buttonwood Capital Partners. He also provides expert input to research projects run by EPRA, which focus on the importance of emergent real estate sectors.
Matthew graduated with a degree in Economics & Politics from the University of York. He is a CFA charterholder and holds the IMC