M&G launches new global infrastructure feeder fund

M&G Investments has launched a new rand-denominated global equity fund that will allow local investors to gain easy access to global listed infrastructure assets.

M&G’s new Global Listed Infrastructure Feeder Fund was launched in response to “significant demand from local investors”, the company said. It will give South African investors access to these assets and their growth and inflation protection benefits.

The Feeder Fund, now available directly from M&G in South Africa, invests in the existing Luxembourg-domiciled US dollar-denominated M&G (Lux) Global Listed Infrastructure Fund.

It already has a successful five-year track record and $3.2 billion (approximately R60 billion) under management and invests across a diversified mix of listed infrastructure-related equities around the world.

M&G has also applied for approval to distribute this US dollar fund in South Africa in terms of Section 65 of the Collective Investment Schemes Control Act (CISCA). 

“The launch comes at a time when global listed infrastructure investments are increasingly popular around the world for offering diversification, steady income growth and inflation protection,” the company said.

“Far from being a traditional fund focused solely on utilities and other basic infrastructure projects like roads and bridges, our fund is much more varied and innovative,” said Chief Client and Distribution Officer at M&G Investments Pieter Hugo.

“It includes renewable energy solutions, health, educational and civic facilities as well as an array of ‘evolving infrastructure’ needed for the global digital economy.”

These longer-term projects generate growing income streams, often contractually linked to inflation and able to weather economic downturns. These qualities enable resilient dividend growth for investors who benefit from their compounding ability. 

The M&G UK investment team managing the Fund aims to beat the MSCI All Country World Index (ACWI) over any five-year period, using bottom-up stock selection and focusing on companies with strong dividend growth and long-term earnings growth potential.

The Fund holds between 40 and 50 stocks at any given time.

The team narrows down their investment options of around 650 listed stocks to approximately 250 by considering only those with assets that are difficult to replicate. Additionally, they prefer stocks with a market capitalisation of over $1 billion for liquidity purposes and, naturally, with attractive valuations. 

A sustainable business model is also an important consideration, with ESG criteria integrated into the fundamental investment process. 

According to Alex Araujo, who has been managing the fund since its inception over five years ago, decarbonisation and energy security are playing increasingly important roles in the asset class and are important investment opportunities represented in the Fund. 

“While this asset class has often been ignored, it has a remarkable compounding ability over time and is now at the centre of the global energy transition. Utilities are the deployers of renewable energy and are also putting infrastructure in place to ensure energy security,” he said.

Among the largest overweight holdings in the M&G (Lux) Global Listed Infrastructure Fund currently include:

• Enel, the Italian multi-national electricity and natural gas group
• TransCanada Corp, a major North American energy company
• Crown Castle Inc, which provides wireless telecoms infrastructure in the US

Utilities have typically formed the foundation of many infrastructure funds because of their ability to produce consistent returns over time.

While many investors might think their returns uninteresting, over the last 20 years utility returns have nearly kept pace with those from general global equities. The MSCI ACWI Utilities Sector Index has produced 7.7% per annum, and the MSCI ACWI has generated 8.5% per annum (both in US dollars to 31 May 2023).

The M&G (Lux) Global Listed Infrastructure Fund has returned 7.6% per annum (C Class, net of fees in US dollars) over the five years to 31 May 2023.

These returns can be compared to the 3.2% per annum generated from the average fund in the Morningstar Equity Infrastructure Sector and the 6.8% per annum generated from its benchmark over the same period.