The infrastructure companies trumped by Trump

Whilst infrastructure was a hot topic in the press in November, the global sector actually declined in November, as financial markets absorbed the unexpected US Presidential election result.

According to First State, who manage the Elite Rated Global Listed Infrastructure fund, the best performing infrastructure sub-sector was railroads, which rallied 9% on hopes that a Trump presidency could lower corporate tax rates and stimulate economic activity. The pipelines sub-sector also gained 2% on hopes that Trump’s leadership could lead to additional capital expenditure opportunities.

However, mobile towers and utilities lost 11% and 5% respectively, giving up ground as rising bond yields dampened sentiment towards interest rate-sensitive investments.

In terms of countries, Japan was the best performing region (up 5%) as yen weakness offered support to the country’s ports, airports and passenger rail stocks. In contrast, the UK underperformed due to its high utilities weighting, falling 9%.

Outlook

The First State Global Listed Infrastructure fund has been positioned for some time in anticipation of higher interest rates and an improving economic outlook, with an underweight exposure to interest rate-sensitive utilities and overweight exposure to toll roads, railroads and ports. This positioning served investors well in November, as active management protected capital during a turbulent period for financial markets.

The two main risks for infrastructure investors, according to First State, are political or regulatory uncertainty; and sharply rising interest rates. November saw both risks play out in a material way, leading to short-term underperformance compared with global equities.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.