Ausbil Global Essential Infrastructure Fund, Portfolio Managers, Tim Humphreys & Jonathan Reyes introduce the fund, the unique return characteristics of the global essential infrastructure universe as defined by Ausbil, and opportunity for global diversification and the potential that comes from a major need for more infrastructure spending, globally.
Jessica Amir: Hi, I'm Jessica Amir for the Finance News Network. Today I'm at Ausbil with portfolio manager Tim Humphreys and co-portfolio manager Jonathan Reyes. Gentlemen, welcome to the network and thanks for having us.
Jonathan Reyes: Thank you. It's a pleasure.
Jessica Amir: So first up, you look after the global essential infrastructure fund. Just give us an introduction to the fund.
Tim Humphreys: Yeah, the aim of the fund is to provide well diversified exposure to the best value essential infrastructure companies around the world, but predominantly in the developed markets. Essential infrastructure is an Ausbil definition and it's really focusing on those companies that are essential for the functioning of a modern society. And what this means is that these companies have a very nice blend of defensive characteristics, but also opportunities to grow. And what this means for the fund is the fund as a very nice blend of growth and income.
Jessica Amir: And Tim, in Australia here, we're seeing record amounts invested into infrastructure. If you wouldn't mind telling us what it's like overseas, what are the themes that are taking place? Where's the money coming from? And what's really fuelling the growth?
Tim Humphreys: In North America for example, a lot of the local gas distribution companies have networks of pipelines that are 60 to 70 years old, cast iron or steel. They leak, they're not very good for safety, and the companies need to replace these with more modern high density polyethylene pipelines. But this is going to take 20-odd years. And that provides a fantastic opportunity for long-term investors to benefit from.
On the environmental side, we see for the first time around the world that renewable energy such as wind and solar is now cheaper than traditional generation such as coal or gas for the very first time. And what we're seeing is that utilities are retiring their old and dirty coal fleets and replacing them with more renewable energy. And that's a fantastic opportunity for investors. And we're also seeing, particularly in the UK, for example, water pipelines and water networks where the water leaks up to 20 per cent before it even gets to the home. And the regulator is saying you need to invest into these pipeline systems in order to reduce the leaks. And that provides investment opportunities for investors such as ourselves to benefit from over the very long term.
Jessica Amir: Thanks, Tim. Now over to you, Jonathan. What's the fund aiming to achieve?
Jonathan Reyes: The objective of the fund is deliver returns that are above OECD G7 inflation plus five and a half per cent per annum, and that's historically been around eight per cent, eight and a half per cent on a per annum basis. And we think that the asset class overall is well suited to deliver those types of return and expectations.
Jessica Amir: And earlier, Tim mentioned some of the growth areas around the globe, but can you tell us about your sector exposure as well as your largest positions?
Jonathan Reyes: Something like an Atlas Arteria (ASX:ALX) in Australia really does fit nicely into what we're trying to achieve. So from a top down perspective, we have a view of lower for longer interest rates. We think the base rates are going to maintain globally lower versus consensus. And where we want to be exposed is stuff that's long duration, so Atlas Arteria fits that component sector wise. We, again, transportation looks inexpensive to us. Enbridge (TSE:ENB) in Canada would be another one. The energy sector overall looks attractive and Enbridge particularly for the quality of the company, Enbridge historically has never been this highly discounted in the market. So we think it's a unique opportunity to buy. And then maybe something that's not as linear in the process but NextEra energy (NYSE:NEE), as Tim was talking through, one of the big thematics of infrastructure around renewables. So NextEra's kind of split between a regulated utility base and a renewable portfolio. It's the world's largest wind producer, and for us, it's underappreciated portfolio.
Jessica Amir: Moving to the overall performance of the fund. You've done quite well. So tell us about that.
Jonathan Reyes: Really has about delivering asymmetric returns. So being able to deliver better capture ratios, which we think is defined as talking about when the market goes up, being able to participate, and when the market falls, not falling as much. And for us, essential infrastructure historically is run close to 90 per cent of upside capture, but only 50 per cent of the downside. So since inception from December last year to 30 June, 2019, the funds delivered 21 per cent net of fees, which is something we're very proud of, and that's 17 per cent above benchmark for the portfolio. So we're very happy with the start to the fund.
Jessica Amir: Thanks, Jonathan. Now back to you, Tim. Touching on the risks of infrastructure earlier, Jonathan highlighted some of these. Could you just dive into that?
Jessica Amir: And just lastly, before we let you go, what's your outlook for the second half of this year?
Tim Humphreys: Yeah, certainly around the world we're seeing infrastructure failing, we're seeing bridge collapses around the world, and we're seeing infrastructure that needs to be upgraded. So certainly the background for investing in infrastructure is not going away anytime soon, and that's very positive. We're also seeing the economic cycle and interest rate cycle being lower for longer, which is very supportive for infrastructure valuations. Within our portfolio, we're seeing the expected returns comfortably ahead of what our long-term objectives are.
Jessica Amir: Tim Humphreys, Jonathan Reyes, thank you so much for the introduction to the fund.
Jonathan Reyes: Thank you.
Tim Humphreys: Thank you.