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.