Get steady income and growth with First State Global Listed Infrastructure

One way to gain exposure to listed infrastructure companies is First State Global Listed Infrastructure Fund (GB00B24HK556). It aims for income and some capital growth, and has been managed by Peter Meany and Andrew Greenup since launch in 2007. They are supported by a team of seven infrastructure specialists. 

The fund's managers do not directly invest in infrastructure assets, but rather the shares of infrastructure companies that operate in areas with barriers to entry, sustainable growth, predictable cash flows and pricing power. This leads them to companies that provide essential services such as water, power and transportation – services that consumers need no matter what the economy doing. This helps to provide relatively good returns even during periods of market volatility. And they look to invest in quality companies that are trading at a discount to their estimate of their intrinsic value.

Just over half of the fund is invested in the US, and its largest sector exposure is electric utilities. 

As part of the investment selection process, Mr Meany and his team assess factors such as a company’s management team and financial position. They also consider the environmental, social and governance (ESG) issues relating to the company by performing due diligence, and make more than 500 company visits each year. They then rank the companies on the basis of valuation and quality. 

The quality ranking model consists of 25 criteria that the team thinks influence infrastructure company performance. These include management, regulation and sustainability. Each criterion is assigned a score, and a lower quality score means it is less likely that a stock will be included in the fund. ESG-related criteria account for 20 per cent of the overall quality score. The two ranking results are then combined to get an overall score. 

The fund's managers also consider the macroeconomic and geopolitical risks that the companies face, which helps them manage potential risks to the fund.

As the fund aims to provide income and growth it is important to assess both. Although the fund has a yield of 2.97 per cent and has made a total return of 286 per cent over 10 years, ahead of broad indices such as MSCI World, it has underperformed its benchmark, FTSE Global Core Infrastructure 50/50 index, over shorter cumulative periods.

And the assets it invests in are subject to infrastructure-specific factors such as natural disasters, operational disruption, and national and local environmental laws. 

However, Mr Meany and his team try to mitigate these risks by diversifying across countries and infrastructure sectors. And the fund's current cumulative returns are influenced by underperformance of its benchmark in 2017 and 2018. In 2015 and 2016 the fund beat its benchmark, and is ahead of it so far this year.

It also often delivers better returns than many broad global equities funds: it is ahead of the Investment Association (IA) Global sector average over one, five and 10 years, as well as MSCI World index.

So if you want to build some steady income into your portfolio alongside a good level of growth, First State Global Listed Infrastructure's exposure to growing areas and inflation protection means it  looks like a good option. Buy. ZB