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Have you ever thought about investing in essential services?
From the power that turns on your lights, to the water you drink, to the roads people use every day, these services are essential for our daily life. Irrespective of the market conditions or who’s in government, the demand for these services are predictable and stable.
Investing in infrastructure is about investing in companies that provide these essential services to society.
People have been investing in infrastructure since the 1800’s when US utilities were listed on the New York Stock Exchange. Today, the universe of investable companies is much broader and now includes airports, roads, pipelines and telecommunication towers.
As is the case for most infrastructure, the assets have natural monopolies that face little competition. For example, it makes little economic sense to have 2 sets of electric poles and wires on your street or have 2 parallel motorways headed to the same destination.
Limited competition coupled with the predictable demand means high quality infrastructure companies have generated and we believe, can continue to generate attractive and stable returns for investors.
i) Regulated Utilities, ii) Transport Infrastructure and iii) social infrastructure.
Regulated Utilities include electric, gas and water utilities. As the name suggests, these companies are regulated by a government-sponsored entities who allow these monopolies to earn a fair rate of return with low potential for loss in exchange for delivering these essential services.
Regulation means these utilities are generally protected from changes in demand, inflation and interest rates.
Transport Infrastructure includes such things as airports, telecommunication towers and toll roads. In this case, revenue grows in line with patronage whilst the prices they charge are typically linked to inflation. Think about cars on a motorway which are charged a toll. That toll often rises in line with inflation.
Social infrastructure includes hospitals, schools and prisons. The government takes on the demand risk and the operator will earn availability payments for maintaining the assets.
How do we do it?
At Magellan, our approach to infrastructure investing is built on two principle objectives.
Firstly, to deliver our investors attractive risk adjusted returns of Inflation plus 5% over the medium to long term; and
secondly, to protect our investors from permanent capital loss. This means protecting your capital when the markets go down.
Our team of analysts undertake fundamental research to identify high quality infrastructure companies that have demonstrated their ability to deliver reliable earnings whilst trading at a discount to our assessed intrinsic value. We seek to identify companies who are not sensitive to sovereign risk, competition and commodity price risk.
By doing so, we believe investors should expect attractive real returns over the medium to long term, irrespective of market conditions.
Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 (‘Magellan’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au.
Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain ‘forward-looking statements’. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.
This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material.
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