Infrastructure investing is the new name of the game for the
Phoenix Global Utilities Fund (PGUAX), which will become the
Phoenix Global Infrastructure Fund, effective Aug. 18. The ticker symbol will remain the same.
The transition is expected to be smooth, according to the management team from Chicago-based Duff & Phelps Investment Management Co., which has managed the fund on a subadvisory basis since it was launched in December 2004.
"Infrastructure has become a recognized asset class and it's important to our shareholders that we make this change," said Randle Smith, co-manager of the fund, along with Connie Luecke.
"We have not invested in infrastructure to date, but with this change we will be doing that," he added. "We believe in truth in labeling."
According to Mr. Smith, the current prospectus already allows the fund to hold about 95% of what the fund is likely to invest in after the change becomes official.
Ms. Luecke downplayed the name change as "semantics," but the reality is that this portfolio will undergo a somewhat significant evolution over the next few months.
Part of the change includes introducing the MSCI Global Infrastructure Index as the fund's new benchmark.
Up to this point, the benchmark had been a blend of three separate indexes that favored U.S. electric companies, but also included some foreign electric companies and global telecommunications stocks.
"Moving from a utilities sector fund to one invested in a growing infrastructure asset class strengthens the fund's risk-return characteristics," Ms. Luecke said. "Infrastructure assets provide excellent portfolio diversification, have attractive fundamental characteristics and are experiencing a trend of privatization of assets that have been historically government-owned."
The fund's new strategy will involve investing at least 80% of its assets in infrastructure companies in three or more countries, one of which will be the United States.
The global infrastructure index has a 33% weighting in both utility and telecommunications companies. This is followed by a 20% energy sector weighting and a 9% weighting in highways and railroads.
The remaining 5% is allocated to airport services and social infrastructure, including school systems.
Following the new benchmark also will mean more exposure to non-U.S. stocks.
The current blended benchmark has about a 20% weighting in foreign stocks, which compares to 65% under the new index, and the fund has the flexibility to invest up to 75% of its assets in non-U.S. companies.
Exposure to electric and gas utility sector stocks will decline under the new strategy to about 33% from the current 71%.
Telecommunications sector exposure will increase slightly to 33% from 29%.
Even though privatization of government assets is an established practice in many parts of the world, it is still gaining momentum in the United States, and this is where the new strategy is expected to give the fund a boost.
"For years, everyone has been waiting for the United States to ramp up in this area," Mr. Smith said. "We're in a situation now where governments will be forced to do this to raise revenue."
Ms. Luecke added that the new strategy will give investors an opportunity to take advantage of growing movement toward privatization of assets currently owned and operated by federal, state and local governments.
"We think we're early in this trend," she said.
The fund is part of Phoenix Investment Partners, a $34.5 billion asset management subsidiary of The Phoenix Cos. Inc. of Hartford, Conn.
Under its current strategy, the fund gained more than 21% in each of the past two years, a result in line with the specialty utilities category, as tracked by Morningstar Inc. of Chicago.
The fund has a two-star rating from Morningstar, and declined by 5.9% this year through Thursday.
The average return for funds in Morningstar's specialty utilities category was a decline of 3.8% over the same period.
The Standard & Poor's 500 Index declined by 9.6% over the same period.
Opportunities will abound under the new strategy, according to Mr. Smith, who estimated that the potential global market in the infrastructure space equals more than 1,500 companies with a total market capitalization of more than $6 trillion.
That universe is boiled down to about 300 companies by including only those companies with a market cap of at least $1 billion.
Questions? Observations? Stock tips? E-mail Jeff Benjamin at [email protected].
