Sophie Gibbons, Zenith; Ben McVicar, Magellan. Photo: Matt Fatches
Category: Infrastructure
Winner: Magellan Asset Management
Analyst: Sophie Gibbons
Sector overview:
The infrastructure sector remains a highly competitive space, with many well regarded active managers. The sector produced more subdued returns over the past 12 months, when assessed relative to the strong returns observed over the prior three years.Commodity prices and broader macroeconomic events have presented challenges for active managers, with the sector demonstrating a high level of bifurcation amongst active managers. Despite the modest decline in the Australian dollar over the past 12 months, the hedged infrastructure products have outperformed their respective unhedged counterparts.
Zenith says…
Zenith believes the Magellan infrastructure investment team remains well resourced and we retain a high level of conviction in its collective abilities. Furthermore, we believe the team is bolstered by the knowledge of lead portfolio manager, Gerard Stack, whom we continue to hold in high regard. The fund employs a stringent definition of infrastructure. The fund is constructed in a high conviction manner to produce a benchmark-unaware exposure to global listed infrastructure. The fund continues to demonstrate a strong level of outperformance on an absolute and peer-relative basis, placing it in the first quartile of assessed managers over a range of time periods.
Interview
Ben McVicar
Assistant portfolio manager and investment analyst
Magellan
The things for us that have been most relevant to portfolio performance over the past 12 to 18 months have been about the divergence in infrastructure returns across some asset classes, which have been deemed infrastructure but really have a heightened risk involving those assets. For it, the key differentiation in returns has come about by avoiding those assets.
We’ve always had a strict and disciplined view on what infrastructure needs to be and having that reliability of return; for us it’s been about sticking to that knitting and it’s worked out well over the period.
There are certain parts of the market that have been caught up in the yield trade – the search for yield globally. So for us, it’s about avoiding those sectors while still finding subsectors that we’re happy to invest in to give reliable returns to our investors. It’s a two-stage process. We first have to get through an absolute filter – so for us, you have to have at least 75 per cent of your earnings coming from what we would deem to be high-quality core infrastructure. That’s stage one and involves intensive research to first define the universe. And after that we have a few other portfolio stages, which is the bottom-up research where we’re actually valuing companies, and that’s a very intensive process – trying to understand the risk; and then we have a top-down process in portfolio construction.
