Regulated assets add protection to infrastructure earnings

Oksana Patron

7 February 2023

The regulated assets are expected to increase over the next several years, offering infrastructure earnings better protection compared with global equities, which experience the worst year since 2008 in most developed markets.

ClearBridge Investments said that, against this backdrop, its two main infrastructure strategies saw the record inflows demonstrating investors’ appreciation of defensive and resilient nature of listed infrastructure.

Combined, the ClearBridge Global Infrastructure Value Strategy and the ClearBridge Global Infrastructure Income Strategy posted an increase of 3.7% and 1.9%, respectively, for 2022, with assets under management (AUM) having grown by 27% to $12.4 billion at the end of December, 2022.

According to ClearBridge’s portfolio manager, Nick Langley, there would be more room for growth over the next few years for regulated assets where the companies generate their cash flows, earnings and dividends, from their underlying asset bases.

He also noted that most infrastructure companies had a link to inflation and although there were differences by sectors and regions, the mechanisms within regulation and concession agreements generally provided for a direct or indirect pass-through of inflation or other variables such as bond yields.

“The standout performers for the Income Strategy were two Australian listed infrastructure stocks in the portfolio – the toll road operator Atlas Arteria and gas utility APA Group,” Langley said.

“The APA Group is Australia’s largest gas pipeline operator. APA owns and manages gas transmission pipelines in all states of mainland Australia, as well as gas storage and processing, contracted power generation and renewable energy production.

“APA’s share price performed well during 2022, starting the year with the overhang of the failed AusNet Services takeover, along with ESG-related concerns on the future of gas. However, the share price benefited from the company’s strong contracted inflation pass through and an improved market view on the longevity of gas in the energy mix.”