10 years of the Magellan Infrastructure Fund
The Magellan Infrastructure Fund (the Fund) has returned 8.6% (net of fees) over the 10 years to 30 June 2017, 2.6% above the performance of the S&P Global Infrastructure & Utilities Index, which returned 6.0% over the period.
The Fund is managed according to Magellan's concentrated Select strategy, which seeks to provide efficient access to stable returns offered by the infrastructure asset class while protecting capital in adverse markets. Infrastructure stocks that will help achieve these aims generally have strong underlying financial performance over the medium to long term, which is expected to translate into reliable, inflation-linked returns.
The Select portfolio typically holds between 20 to 40 stocks.
Commenting on the history of the fund, lead portfolio manager and and Magellan head of investments and infrastructure, Gerald Stack said: "Our aim has always been to construct a portfolio of high-quality listed infrastructure investments to enable investors to benefit from the reliable earnings derived from true infrastructure companies."
He added: "[Over the past decade the Fund's] underlying philosophy has remained consistent. From the beginning, we believed that an investment in infrastructure should provide investors with an exposure to reliable income streams and that the consistency of these income streams should give investors great confidence that they will grow their wealth over time."
10 years of the Magellan Infrastructure Fund: Q&A with Gerald Stack
- Can you give us a brief history of the Fund from an investment perspective?
Our aim has always been to construct a portfolio of high-quality listed infrastructure investments to enable investors to benefit from the reliable earnings derived from true infrastructure companies.
In the early days, the Fund was more concentrated, holding about 15 to 20 stocks, and had a significant weighting to non-utility infrastructure stocks such as toll roads and airports. Typically, the weighting to non-utilities accounted for more than 80% of the portfolio.
We came to the view that, while investors wanted the reliable returns offered by infrastructure, the relatively concentrated portfolio structure we had adopted was leading to more volatility than desired. Accordingly, we increased the number of holdings in the portfolio to about 30 stocks and boosted the weighting held in regulated utilities, such as water, natural gas and electricity. Utilities now generally make up 30% to 50% of the investment portfolio and, on occasion, the percentage has been as high as 60%.
- Has the philosophy behind the Fund evolved over the past 10 years?
The underlying philosophy has remained consistent. From the beginning, we believed that an investment in infrastructure should provide investors with an exposure to reliable income streams and that the consistency of these income streams should give investors great confidence that they will grow their wealth over time.
Infrastructure investors generally define infrastructure as essential assets. Essential assets provide services that communities rely upon for their everyday needs – water, energy, transport, communications – and so demand for the service that infrastructure provides is reliable. However, reliable demand does not necessarily mean that the asset will generate dependable earnings or cash flows. A company, for example, may find itself subject to unfair government action – the government might refuse to allow a company to increase its prices or it might confiscate the asset. As a result, investors in the company may be subject to a loss that is at odds with the desire to gain exposure to reliable investment returns. It is Magellan’s philosophy that for a company to be included in the investable infrastructure universe it must not only be an essential asset also its cash flows must be reliable and not subject to undue risk. To ensure cash flows are reliable, it has always been our thinking that the earnings an infrastructure company generates should not be sensitive to competition, movements in commodity prices and regulatory risk.
While the application of these principles to the potential universe of investable infrastructure limits the potential universe in which we can invest, it means that we can be confident that we will deliver investors the reliable investment returns that we believe they expect from the asset class.
1300 127 780 or firstname.lastname@example.org