5 min read 22 Nov 21
Summary: Climate change is one of the biggest issues facing the world today. Policymakers are looking for ways to combat global warming. Alex Araujo, fund manager of the M&G (Lux) Global Listed Infrastructure Fund, therefore believes it is likely that the infrastructure sector will play one of the main roles in this.
Not to be excluded from everyday life
Every day, we rely on infrastructure - usually without realizing it. Whether we're making a cup of coffee or sending an email: Many of our daily routines are supported by a physical infrastructure network. Its services enable the modern world to function smoothly.
Alex Araujo believes that the companies that own and control these vital physical infrastructure assets are an attractive source of investment opportunities. This is because infrastructure is hugely important to modern society, and the assets are inherently long-lived. That's why he also believes they can provide stable and growing cash flows for investors for many years to come.
We try to invest in 40-50 infrastructure companies from around the world. We trust these companies to grow their dividend payments sustainably over the long term. We believe investing in companies with growing dividends is a winning strategy in the equity market over the long term.
We look for opportunities beyond the "traditional" infrastructure sectors of utilities and transportation, and diversify into areas such as healthcare and education, as well as communications infrastructure and transaction networks. In this way, we seek to create a portfolio that covers the full range of the asset class and also reflects the increasingly digital world.
Environmental, social and governance (ESG) risks and opportunity in infrastructure
ESG considerations are becoming increasingly important for investors. The biggest issue for the infrastructure sector in this context is probably climate change. Power generation and transportation contribute significantly to greenhouse gas emissions.
Alex Araujo acknowledges that there are environmental risks associated with infrastructure assets, but he also believes that utilities can also be at the center of the solution by facilitating the so-called "energy transition," the shift from fossil fuels to cleaner forms of power generation.
Policymakers and investors are increasingly focused on the challenges of climate change. As a result, we see several interesting areas where infrastructure companies can help reduce CO2 emissions worldwide.
Infrastructure firms and the path to net zero carbon
For Alex Araujo, the use of renewable energies is the most obvious and immediate way to find a path toward net zero emissions. He believes the growth opportunities in this area are immense, and they exist worldwide. Technology, including increasing offshore wind and other forms of renewable energy generation, is acting as a driver.
Renewables are the most obvious opportunity when it comes to decarbonization. However, in the transition phase, they are not the only one. We also see opportunities in companies that decarbonize their own electricity mix: by converting, replacing or shutting down more CO2-intensive forms of power generation.
The energy transition is a process. After all, it is not possible to replace existing fossil fuel-based power generation with renewables everywhere. This applies to emerging economies as well as to other parts of the world. That's why we see great opportunities in transitional energy sources - and especially in natural gas: for example, to make coal-fired power generation obsolete with a cleaner fossil fuel. Ultimately, the goal is to replace conventional power plants with renewables. But along the way, it is crucial for a functioning society and economy to take a transitional step.
Looking ahead, we see green hydrogen (produced from renewables) as one of the fuels that will help us on the road to carbon-free power generation. The technology is still in its infancy, and it is not yet commercially viable. But we believe it can become a promising solution for climate protection. Companies are already investing in the production of hydrogen and testing its use in the natural gas stream. In the combustion process, it is cleaner than any other fuel discovered so far.
It is becoming increasingly urgent to work towards a CO2-free future. Alex Araujo believes that the infrastructure sector will play an important role in achieving this goal through the energy transition. It can offer the potential to combine positive societal outcomes and attractive investment returns. He is therefore convinced that investments in infrastructure can open up rewarding long-term prospects.
The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
The fund holds a small number of investments, and therefore a fall in the value of a single investment may have a greater impact than if it held a larger number of investments.
The views expressed in this document should not be taken as a recommendation, advice or forecast.
We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.
Investing in emerging markets involves a greater risk of loss due to greater political, tax, economic, foreign exchange, liquidity and regulatory risks, among other factors. There may be difficulties in buying, selling, safekeeping or valuing investments in such countries.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.