Fund Focus: Infrastructure Exposure to Weather Turbulent Environments

The year 2022 has been turbulent, with the world recovering from the Covid-19 pandemic. Also, record inflation, rising interest rates and fears of another financial meltdown have dragged down equity markets and bonds. Instead of sticking to these more traditional asset classes, investors have had an opportunity to look elsewhere for alternatives and introduce to their broader investment portfolio assets that are less correlated to equities and bonds. Infrastructure is one example of an asset class that’s expected to weather turbulent environments and give returns that look a bit different from that of equities and bonds.

For the last 12 months to end September, in dollar terms, the MSCI World Index is down 20.4% and global bonds down 19.5%. Infrastructure still has to deal with the structural shifts and economic environment changes, but it can cushion some of the market declines. Evidence to this is global infrastructures being down 5.6% year to date - a big difference when compared to the stock market and bonds. As a South African investor, how would you access this exposure in a cost-effective way?

In September last year, Satrix launched the Satrix Global Infrastructure Feeder ETF, that tracks the performance of the FTSE Global Core Infrastructure Index at a TER of 0.77%. The ETF offers exposure to global listed companies that are involved in core infrastructure activities like development, ownership, operation, management and maintenance of structures or networks used for the processing or moving of goods, services, information/data, people, energy or necessities from one location to another. It has been identified that, globally, infrastructure spending is much needed. Yet, despite its importance, the spending is lower than it should be when compared to the current population growth and so there’s still a massive gap to fill.

Infrastructures need servicing. As cities grow increasingly rapidly, they need more innovative and tech-backed solutions, especially with the rise of smart cities. Rapid urbanisation has been identified as a megatrend that will impact the companies we invest in for the next decade or so. Hence, in July Satrix launched the Satrix Smart City Infrastructure Feeder ETF, which tracks the STOXX Smart City Infrastructure Index at a TER at 0.60%.

The Satrix Global Infrastructure Feeder ETF includes companies that are, for instance, building bridges, and providing infrastructure for supplying electricity and clean water, while the Satrix Smart City Infrastructure Feeder ETF includes companies that provide services like enhancing the quality of life of residents in the development of smart cities, by improving air quality, enhancing transportation and improving the health and safety of residents. The infrastructure fund’s assets have the potential to provide a consistent inflation hedge and be a diversifier in a broader investment portfolio. The Smart City Fund is made up of companies that generate revenue from taking advantage of population growth and people moving to smart cities. It is tech based and the construction of the index goes through ESG screening. Smart city focused indices also offer the advantage of being aligned to the UN Sustainable Development Goals (SDGs) and feeds into Sustainable Finance Disclosure Regulation (SFDR) Article 9 products, which is appealing to local institutional and retail investors who want their investments to be impactful and sustainable.

Sector wise, the Smart City Fund is more diversified mainly because it equally weights its constituents but caps them at five times their free float market cap. In comparison, the Infrastructure Fund has an overweight of more than 50% in utilities when comparing it to the MSCI World Index. Utilities and the communications sector provide longer duration infrastructures and in a declining environment these tend to outperform. Measured since the beginning of the year, utilities and telecommunication services formed part of the outperforming industries. They came in behind the oil & gas and aerospace & defense industries, which is not surprising considering the war in Ukraine.

There is a very small overlap of these funds when comparing them to a broad index like the MSCI World. The Smart City Fund overlaps the index by 2.6% while the Infrastructure Fund is around 4.3% of the MSCI World Index. The Infrastructure Fund has a historical dividend yield of 3% while the Smart City Fund has been delivering a 2% yield.

Find out more about Satrix Global Infrastructure, Click Here. (https://satrix.co.za/products/product-details?id=65)

Disclaimer

Satrix Managers (RF) (Pty) Ltd (Satrix) a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. The tracking errors for theSatrix Healthcare Innovation Feeder ETF and the Satrix Smart City Infrastructure Feeder ETF are not available as these are newly established ETFs. Past performance is not necessarily a guide to future performance and the value of investments/units may go up or down. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. A feeder fund is a portfolio that invests in a single portfolio of a collective investment scheme, which levies its own charges and which could result in a higher fee structure for the feeder fund. International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political rick, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The index and the portfolio performance relative to the index can be viewed on the ETF Minimum Disclosure Document and or on the Satrix (www.satrix.co.za) website. Satrix Investments (Pty) Ltd is an authorised financial service provider in terms of the Financial Advisory and Intermediary Services Act, 2002.