Climate change, volatility and impacts on global infrastructure

Funds Management

by Natalie McDonald

Transcription of Finance News Network interview with Redpoint Investment Management Portfolio Manager, Alex Stephen

Natalie MacDonald: Hello I’m Natalie MacDonald for the Finance News Network. Joining me now from Redpoint Investment Management is Portfolio Manager, Alex Stephen.Alex, welcome back to FNN.

Alex Stephen: Thanks Natalie, it’s good to be here.

Natalie MacDonald: Alex can you start please by giving us an introduction to Redpoint and the fund?

Alex Stephen: Redpoint is a global equity manager. We were formed in 2011 and really the genesis of the business is to deliver solutions to clients in a smart and cost effective way. We have products across the equity market, both in domestic and international equities.
The Redpoint Infrastructure Fund itself was our first product. It was launched in 2012, so it’s got over four years of history now and a retail version of that was offered to clients in 2014, so coming up to two years.

Natalie MacDonald: And Alex, do you see any specific opportunities in the domestic market at present?

Alex Stephen: Australia is, even though it’s only a small part of the world economy, it has some very solid infrastructure companies here and we hold over 5 percent of our portfolio in Australia, which is greater than the index weight. Those companies we particularly like here and are overweight are Transurban and Sydney Airports, and we see good potential for long-term growth in those companies.
Of course we invest across the entire world and we see growth opportunities in many different countries across the world. So 95 percent of our portfolio is focused outside of Australia. Again, we see some fantastic opportunities for investors there.

Natalie MacDonald: Now climate change is not a new issue, what impacts to you think climate change reform and greater corporate responsibility will have on markets generally and also infrastructure more specifically?

Alex Stephen: You’re absolutely right, it’s not a new issue. However, we believe that the broader ramifications of climate change are only really being felt now by the market. We embed within our investment philosophy, environmental and social and governance factors to rank companies and how they score on those metrics. It is a part of the ranking that we put into their weighting in the portfolio.

So companies that are looking to really grab their long-term risks and manage those properly, those are the ones we’re going to actually have higher weights in in our portfolio and we’re going to de-weight and remove companies that really aren’t looking at those risks and are the potential companies to be impacted by these events.

The events themselves are really two-fold in nature. You’re going tohave physical impacts from things like rising sea levels; secondly you’re going to have cost impacts. So where governments start to regulate more heavily and to put taxes on say carbon emissions, then you’re going to have companies that are going to get taxed more heavily on those and therefore their returns won’t be so good. So in the Redpoint Infrastructure Fund, we’re really looking to tilt away from those companies and to invest more heavily in those that are looking at their long-term risks.

Natalie MacDonald: Lastly then Alex, given the volatility at the beginning of the year the mixed outlook for markets, how have you positioned the Redpoint Global Infrastructure Fund and do you expect this positioning to remain relatively stable for the remainder of the year?

Alex Stephen: Markets have been incredibly volatile. It’s the first real period of volatility we’ve seen for about 5 years. The Infrastructure Fund that we manage has been positioned to really be defensive against that sort of volatility. Infrastructure itself is naturally defensive and our portfolio takes that a step further.

The potential increase in interest rates from the US has been really hanging over the market. The oil shock has obviously caused extreme volatility in energy markets, but we have tilted our portfolio to more quality companies, higher quality companies and to less leveraged companies. Those companies will survive better in times of hardship and in times of market shock. So we believe we’re in a very good position to capture that. In fact the portfolio outperformed the global equity market over that first quarter of the year. When markets were falling, our fund was actually up.

Natalie MacDonald: Alex, many thanks for the update.

Alex Stephen: It’s my pleasure.