Principal discuss the Global Listed Infrastructure equity strategy at the Funds to Watch event
Why is your fund a ‘fund to watch' and how could it work in an investor's portfolio?
Our team has delivered top decile performance over the fund's 3-year track record, leveraging decades of investment experience as well as the depth and experience of Principal Asset Management's REIT securities business. Our proprietary valuation and quality frameworks facilitate security selection decisions that are consistent and repeatable. We focus on above-average quality companies trading at compelling relative valuations, while recognizing potential trade-offs across E, S, and economic factors. We have adopted targeted stewardship policies and emphasize scope for real-world progress such as our portfolio's carbon reduction pathway.
The Global Listed Infrastructure equity asset class offers investors a unique blend of exposure to exciting growth trends along with portfolio diversifying characteristics. As Global Listed Infrastructure businesses operate under heavy regulation or contracts, the asset class provides stable, predictable cash flows even in tough times. Historically, Global Listed Infrastructure equity has provided similar returns to general equities but at lower risk, which can improve portfolio outcomes. Currently, Global Listed Infrastructure equity valuations are attractive relative to broader equities, presenting a compelling entry point into an asset class poised to benefit from structural trends like clean energy, demographic shifts, and digitalization. These forces should sustain infrastructure demand for decades, reinforcing the asset class's strong long-term appeal.
Can you give an overview of the team running the fund and your investment process?
The Global Listed Infrastructure equity strategy was founded in 2019, led by lead portfolio manager, Emily Foshag. Emily is joined by portfolio manager, Alex Mottershead, senior analysts, Bing Han and Rishika Davda, and research associate, Carlos Vasquez-Velasco. The Global Listed Infrastructure team utilizes their complementary experiences and deep sector knowledge to conduct thorough stock research, focusing on companies with strong fundamentals and attractive valuations that they believe will be medium to long term outperformers. The strategy's aim is to build a portfolio of 35-45 carefully selected stocks, with stock selection being the primary driver of outperformance.
The team focuses on three primary areas when assessing securities: quality, valuation, and market perception. Sustainability considerations are fully integrated into the analysis of securities. The team's focus is to select stocks where they believe the price paid does not reflect a company's fundamental quality. The team constructs diversified portfolios with high asset-specific risk and distribute potential sources of alpha across a number of similarly-sized active weight positions. Overall, the portfolio favors companies of above average quality trading at below average valuations, typically for which the team has also identified sources of positive variation with the consensus view.
What do you see as the big opportunities and risks for your strategy?
Fundamentals should continue to trend positively in many areas of the listed infrastructure market, providing opportunities for investors. We expect U.S. utilities to sign more agreements to meet data center demand, which has the potential to drive earnings growth rates higher at some companies. The U.S. natural gas outlook should also remain robust, with physical demand in 2025 supported by new liquefied natural gas export facilities coming online and planned coal generation retirements. Further, while excitement around rising demand for power and natural gas have been less relevant for infrastructure names outside the U.S. to date, we see scope for this to emerge as a more important theme in other markets as soon as this year. In transportation, airport traffic continues its post-pandemic strength, and we are watching for a potential inflection in North American rail volumes.
Nearer term risks include geopolitical instability, economic uncertainty, and policy shifts. U.S.-China tensions, the ongoing Russia-Ukraine conflict, and Middle East instability could drive volatility, while rising nationalism may disrupt global trade. The incoming Trump administration introduces policy uncertainty, particularly regarding trade, tariffs, and deregulation. For infrastructure, potential rollbacks of Biden-era climate policies are a risk, though key tax credits for wind and solar will likely remain given broad bipartisan support. Despite these challenges, infrastructure's essential nature provides resilience, offering downside protection and steady income amid market volatility.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We aim to identify stocks where we see the best combination of fundamental quality and value, that will outperform over 3-5 year periods.
Today, our biggest sector overweight is to global towers, particularly as we believe positive fundamental outcomes could drive near-term momentum. These potential catalysts include new shareholder remuneration policies, asset sales, and a potential inflection in U.S. leasing activity in the second half of 2025. Over the longer term, we have a positive outlook as cell tower usage is supported by strong structural growth dynamics such as the growth of higher bandwidth applications, the ongoing 5G spectrum rollout, and a decline in average price per GB, which improves accessibility.
We also have a preference for U.S. natural gas energy stocks, as we are seeing power demand growth for the first time in decades, driven in part by factors like the rise of generative AI and the reshoring of manufacturing activity. As power demand increases, natural gas energy infrastructure is benefiting, since natural gas remains the only viable option for meeting the round-the-clock demand that arises as more intermittent renewable energy sources, like wind and solar, come online.
