Market commentary: Sep 2024

Investment news and performance

The Dow Jones index (a measurement of the overall US share market) reached a record high at the end of September. Central banks have started cutting interest rates as they are confident inflation is under control. This translated to a boost for investments in September capping off a high returning year with all sectors of our client portfolios firing.

Looking ahead, the market is pricing in further interest rate cuts which is positive for investment valuations. This has encouraged buying interest in “older economy” shares (e.g. Caterpillar, Disney, McDonalds) and tempered the over excitement around the prospects of the big tech companies (Google, Microsoft, etc). Our fund managers have been expecting this for some time and are positioned to take advantage of this shift.

Interest topic: The attraction of infrastructure

Infrastructure assets fall into two categories: Regulated utilities (e.g. energy and water utilities), and transport infrastructure to transport people, goods or data, (e.g. airports, marine ports, railroads, cell phone tower networks, oil and gas pipelines). The nature of these assets is unique and, in many ways, attractive to long term investors.

Natural monopoly. Infrastructure businesses are generally natural monopolies that provide essential services to the community. They require significant funding to establish and in many cases there’s only room for one operator in the market.

Transition to carbon-zero. The transition will require significant investment in renewable energy, electricity transmission and distribution that will enable electricity utilities to grow. Likewise ongoing economic growth will lead to increased road and aviation traffic that can be expected to increase revenues and earnings for toll roads and airports.

Reliable earnings. The fundamental need for infrastructure services means demand is reliable, whatever the economic conditions, and earnings are more reliable. Infrastructure businesses can pass on increases in costs.

Government regulation. Energy and water utilities are often regulated by government requiring the utility to provide an essential service while allowing the utility to earn a fair rate of return on capital. Regulations often include the ability to increase pricing in line with inflation.

Our infrastructure strategy. Our strategy is made up of two funds under the infrastructure heading. The first is First Sentier Responsible Listed Infrastructure Fund. Their approach is to “look for companies that are contributing to sustainable development and solving challenges around digital connectivity, urban congestion and renewable energy”.

The second is Salt Sustainable Global Listed Infrastructure Fund. They apply active management, stewardship, innovation, and sustainable leadership, to deliver more sustainable returns in the long term.

Both funds follow the approach that infrastructure investments are likely to benefit from the increasing consumer and government demand for stronger environmental, social and governance standards.

Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFP^CM), Director and Financial Adviser