Global Listed Infrastructure Investment Review and Outlook April 2012
Cohen & Steers
May 18, 2012
Global Listed Infrastructure
Investment Review and Outlook
We would like to share with you our review of the global infrastructure securities market as of April 30, 2012. The UBS Global 50/50 Infrastructure & Utilities Index had a total return of –0.2% (net of dividend withholding taxes) for the month. Year to date, the index returned +4.3%.
Global infrastructure stocks modestly declined in April, although they outperformed the broad stock market as measured by the MSCI World Index, which fell 1.1%. We believe the performance was consistent with the asset class having relatively defensive characteristics during a period of increased market risks.
The global macro environment became more challenging after a positive first quarter. U.S. (see note) economic data was mixed following a previous string of upside surprises. Meanwhile, Europe re-emerged as a headwind due to political uncertainty in France and the Netherlands, along with deteriorating economic conditions through much of the region, particularly in southern countries.
Against this backdrop, there was a divergence of returns across subsectors. The pipeline group (+4.6%(see note) return in the index), which consists of companies that operate in North America, performed well amid continued good fundamentals. The subsector also received a boost from acquisition news: Energy Transfer Partners (ETP) announced a $5.3 billion bid for Sunoco at a significant premium. Although neither company is included in the index, the news brought favorable attention to the industry’s prospects and the potential for continued acquisition activity.
Marine ports (+3.8%) outperformed on strength in the share-price performance of Vopak, a Netherlands-based owner of global petroleum-storage facilities that reported solid earnings during the month. Unlike most listed marine ports, which handle container shipments and have business prospects that are linked to global trade, the outlook for Vopak is driven by global petroleum-product demand and steadily changing global petroleum-product flows.
The underperformance of the toll road subsector (–4.8%) reflected declines from companies that have operations in Europe, including France’s Vinci and Spain-based Abertis. Electric utilities (–1.5%) also underperformed, although the more-stable regulated companies within the subsector had a collective gain. In addition to declines among certain European names, Japanese utilities struggled as delays in nuclear plant restarts and uncertainty around tariff increases led some companies to delay announcing their dividend forecasts for the current year.
We remain cautious toward Europe, given the region’s formidable sovereign-debt issues and the likely longer-term impact of austerity measures on growth. More broadly, we continue to be aware of regulatory and political risk, as regulated businesses remain an easy target of cash-strapped governments (through measures such as price regulation and higher taxes). Emerging markets look relatively attractive to us, given structural demand growth and monetary easing policies in many countries.
In general, we believe the predictable income, modest volatility and long-term growth potential of infrastructure securities continue to offer an attractive combination in the present market environment. We remain focused on subsectors we believe offer attractive relative valuations and compelling growth dynamics, such as pipelines, water and communications infrastructure. We are significantly underweight electric utilities given continued sector-specific fundamental and regulatory risks.
Note: Sector returns in local currencies as measured by the UBS Global 50/50 Infrastructure & Utilities Index.
(c) Cohen & Steers