By Andrew Greenup, senior portfolio manager, Global Listed Infrastructure Securities, First State Investments
Face-to-face visits are a big part of the investment process, as they let managers glean valuable information about a prospective investment. First State Investments recently made a research trip to the US, visiting a raft of people from companies, regulators and across the industry. From the trip it became apparent that the US is set to benefit from structural growth stories such as increasing use of mobile data and investment in domestic rail. At the same time, market optimism is growing as the US economy slowly continues to recover. A bigger bite of the Apple
The launch of Apple’s iPad 3 in the US brought home to us a fundamental change taking place in the US wireless industry: people performing more data- intensive, everyday activities on their phones. Such activities use more data, irrespective of which devices (e.g. iPhone, Blackberry) or applications (e.g. Facebook, email, Google Maps) are popular at the time. A direct result of US consumers using more data in this way is increased congestion of carriers’ networks. For carriers to grow their businesses in a competitive market (with four nationwide players), they need to continue to invest in their network infrastructure, namely cell sites. Tower companies such as Crown Castle and American Tower Corp own the physical steel structure used in the cell site, meaning they are well placed to benefit from this trend. We own both companies in our fund. The outlook looks bright for the industry as consumers are expected to rapidly soak up the capacity that carriers are installing, forcing a continual cycle of capital investment (similar to the 3G trend).
From new technology to old: railroads
The North American railroad sector has enjoyed a renaissance in recent years, as pricing and returns have improved. This has allowed management teams to re-invest in their business to improve service (more sidings, better IT systems) and open new markets and volume opportunities (new, efficient terminals). With improving service, the US rail industry has a case for continued pricing gains. Our research trip reaffirmed our positive outlook for the US rail sector. In the longer term, we believe that demand for infrastructure assets, underpinned by the chronic need for improvement in several areas globally, will support the asset class. As investors, we are conservative custodians of our clients’ money, recognising that capital preservation is critical to achieving long-term capital growth. Looking ahead, we will continue to focus on quality infrastructure stocks that can deliver inflation-protected income and steady growth.
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