Market commentary: Mar 2024
Investment performance
Global share markets gave investors quite a surprise in 2023. Gloomy forecasts that high interest rates would bring a global recession causing share markets to collapse proved to be well wide of the mark. Instead, global markets were energised by falling inflation and the prospect of interest rate cuts. Gains were not spread evenly though. This is reflected in the overall portfolio returns for our clients with International Equities being the standout performer thanks to the stellar share price growth of companies aligned to developments - and high growth expectations - of artificial intelligence.
Interest topic - Investing in infrastructure
Infrastructure are assets that provide essential services for the efficient functioning of a community. This includes assets such as roads, railways, airports, seaports, energy and water generation and distribution, communication networks, hospitals, and schools.
Our clients have exposure to companies in this asset class through two managed funds in the Property & Infrastructure section of their investment portfolios. They are the Kernel Wealth Global Infrastructure Fund and the Magellan Infrastructure Fund.
Why include infrastructure in investment portfolios?
Infrastructure investments improve diversification in a portfolio because prices of these assets react differently compared to other investments during the economic cycle. Demand for things like energy, water, and roading etc is constant and predictable. We rely on these services every day. The advantages are summed up as follows:
Reliable income due to constant demand for their services.
Limited competition.
Stable regulatory environment.
Natural or inbuilt protection against inflation. Regulators typically allow these companies to raise prices to protect earnings when costs rise.
Stable market price in times of market declines.
Low correlations with other asset classes in a diversified portfolio.
A good example - American Tower Limited
American Tower is a Fortune 500 company that provides infrastructure for modern digital communications operating in America, Europe, Asia, Africa and Oceania. Core business is providing tower sites to customers (tenants) who lease space on the towers to meet the connectivity needs of those they serve. American Tower customers include mobile network operators and multinational communications companies, media and broadband providers, government agencies.
The company is the largest tower owner in the world and owns 222,858 towers worldwide. Interestingly 75,950 are in India. Also, the second biggest tower owner in the world is an Indian company called Indus.
American Tower is the 10th largest holding (out of 29) in the Magellan Infrastructure Fund. They like this company as it generates reliable income. This is due to: limited competition, long term customer contracts, high switching costs for customers, it’s difficult to build new towers, towers are typically unregulated and hence face limited sovereign and regulatory risk, towers aren’t exposed to commodity prices or cycles.
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser