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Despite a tendency to underperform in bull markets, infrastructure may yet have its day as market volatility is poised to pick up and the sector’s stable returns start to look a lot more attractive.
Global infrastructure investments offer stable growth by providing exposure to sectors that need to be maintained regardless of how the economy is performing, to markets with growing demand as global population increases, and to stable returns over the course of lengthy projects.
Furthermore, infrastructure investments have a relatively lower correlation to the broader equity markets as company revenues are often linked to price increases thanks to the monopoly power of many infrastructure companies and explicit utility pricing legislation. This is also an advantage when inflation picks up and interest rates rise as infrastructure companies can recover shareholder value through corresponding price increases more quickly than other companies can.
One of the strongest performers in the category is the multi-year FundGrade A+® Award-winning Dynamic Global Infrastructure Fund. At the helm for 12 years, co-manager Oscar Belaiche has produced superior risk-adjusted performance, including a six-month gain of 6.7% and a one-year return of 17.1% as of Nov. 30.
This low-turnover fund has held some names for many years, allowing the holdings to compound in value uninterrupted by sentiment-based trading. The management team is aware that the fund’s size ($1.3 billion) can have an impact on market prices and so aims to keep turnover to a minimum.
Top holdings as of Nov. 30 included Ferrovial SA, Vinci SA, TC Energy Corp., Sydney Airport Holdings Ltd., and Sempra Energy.
The sector faced headwinds in 2018, including the challenging regulatory environment that impacted the energy sector and rising interest rates, which hit utilities. However, this created an excellent opportunity to pick up some high-quality names at very attractive prices. That paid off with the fund’s outperformance through 2019. The managers continue to favour companies with an emphasis on low-cost renewable power generation.
The managers remain optimistic on infrastructure, including energy infrastructure, believing that volume growth will be strong. Furthermore, they believe that current valuation levels are compelling, particularly if growth picks up.
Dynamic Global Infrastructure Fund
Fund company: Dynamic Funds
Fund Type: Global Infrastructure Equity
FundGrade Rating: A (November)
FundGrade A+ Awards: 2012, 2017, 2018
Style: Large-Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Oscar Belaiche since July 2007; Frank Latshaw since Jan. 2016
MER: 2.38%
Fund code: DYN2210 (Front-end load)
Minimum Investment: $500
Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.
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Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.
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