Commentary - September 2023Foresight Global Sustainable Infrastructure Fund
In the commentary below, the Portfolio Managers discuss the tailwinds for infrastructure assets, Foresight Group’s strengths in global infrastructure, and how the Fund is currently positioned.
Would you please discuss the long-term tailwinds for infrastructure assets?
The transition to a low-carbon economy is being driven by environmental, economic, and societal factors. At the core of this shift is the need to mitigate climate change and reduce greenhouse gas emissions, leading to a significant investment opportunity in the renewable energy sector.
Policy initiatives play a pivotal role. Governments worldwide are implementing regulations, carbon pricing mechanisms, and renewable energy incentives to encourage the adoption of clean technologies and reduce emissions. International agreements such as the Paris Agreement have set ambitious targets, encouraging countries to commit to carbon reduction goals. More than 70 countries, including China, the U.S. and the E.U. have set a net-zero target, covering about 76% of global emissions.
In an increasingly digital world, physical infrastructure assets act as the “plumbing” that enables critical operations to operate in a resilient and secure way. Data usage is expected to grow materially over the years to come, driven by tailwinds such as artificial intelligence and 5G. To support this growth, the delivery of infrastructure assets, in sectors such as communictions networks and data centers, provides companies with investment opportunities.
Would you please discuss Foresight’s strengths given the firm’s divisions in private equity, infrastructure investments and public market investing?
Foresight Group is a leading, sustainability-led infrastructure and private equity manager listed on the London Stock Exchange. As of September 30, 2023, Foresight managed over $14 billion for some of the world’s largest institutional investors, private and high net worth individuals.
The Fund’s portfolio management team takes a private market lens to global infrastructure. With access to Foresight’s business divisions, they bring private market expertise to public market investing.
Our team has global reach, conducting numerous company visits in Europe, North America and Asia Pacific. We proactively engage with companies to assess their credentials and encourage sustainability improvements. We seek to thoroughly understand each companies’ physical assets, learn how they run their business and meet with management.
How is the portfolio positioned as of the end of the third quarter of 2023?
We have positioned the Fund with the aim to take advantage of the sizeable valuation opportunity on offer in the sector, favoring what we believe to be best-in-class companies that are currently trading at multi-year low valuation metrics.
As of September 30, 2023, the Fund had a concentrated portfolio of 31 holdings with an average market capitalization of approximately $11 billion. The Fund’s market cap may be the largest it’s been since it was launched at the end of January as the overall portfolio is slightly tilted toward larger and more diversified companies.
The Fund focuses on sustainable companies with high-quality infrastructure assets, dividend strength and healthy cash flows to help them be resilient in many market environments.
Notably, valuation multiples for some of these companies are at levels we have not seen since 2010. Historically these companies have traded at a premium to the overall market. For investors who want to capitalize on a long-term secular trend, we believe the Fund offers an attractive entry point.
Earnings growth is not representative of the fund’s future performance.
The determination of “best-in-class” is solely the opinion of the Fund’s Adviser, and such opinion is subject to change. Those companies that hold leading market share positions, strong growth potential, historically good profitability, and management teams known for integrity and good corporate governance are generally considered to be “best-in-class.” Market capitalization is the total market value of all outstanding shares. Cash flow is money being transferred in and out of a business.