First
American Funds Inc. of Minneapolis is hoping to leverage the growing popularity of infrastructure investing by opening its seven-month-old previously institutional-class mutual fund to retail-class investors.
The $22 million
First American Global Infrastructure Fund (FGIYX) was launched Dec. 17 and made available to individual investors July 1. The fund, managed by Jay Rosenberg, is designed to invest in companies that own, operate or build infrastructure across three broad categories: energy, transportation and utilities.
"There is a huge amount of companies in our initial screening universe," he said.
The fund, which currently has about 100 positions, is selecting from an estimated list of more than 700 companies, the bulk of which are based outside the United States.
The initial criteria for a company to qualify are having a daily trading volume of more than $1 million on a major stock exchange, being based in an area of political stability, owning and operating tangible assets, and garnering a fee for the use of those assets.
"We're very focused on long-life contractual cash flow," Mr. Rosenberg said.
He typically avoids investing in companies that require a lot of money to operate and, for example, would rather own a port operator than a shipping company, he said.
The strategy also steers clear of companies that have "large carbon footprints," or a major effect on the environment, Mr. Rosenberg said, emphasizing the importance of avoiding the risk of related penalties and political fallout.
While the fund has been around only since December and doesn't have a lot of company yet, with just six infrastructure funds tracked by Morningstar Inc. of Chicago, the asset class is well established, particularly outside the United States.
The five-year annualized return of the S&P Global Infrastructure Index through March 30 was 27.1%, compared with a 21.9% annualized return for the MSCI EAFE Index and an 11.3% annualized return for the Standard & Poor's 500 stock index.
"Over the long run, infrastructure investing will help reduce portfolio volatility because of the stability of cash flow," Mr. Rosenberg said. "We're already seeing infrastructure investments used as a defensive play for global equities and as an alternative investment because of its low correlation."
Well-established beyond U.S. borders, infrastructure investing continues to gain momentum in this country as governments move toward privatizing public properties such as toll roads, airports, prisons and schools.
"This is something that began outside the U.S., where it is much more common, but now we're starting to see a lot of foreign companies buy up U.S. infrastructure," Mr. Rosenberg said. "Right now, there is still quite a bit of opposition in the U.S. to the idea of selling off infrastructure, because the idea is still new."
Industry consultants estimate that as much as $1 trillion could be invested over the next decade in public leases for everything from toll roads and parking garages to pipelines and water treatment plants.
Mr. Rosenberg said a key element of his strategy is broad diversity, which includes not only exposure to at least 10 countries but also broad exposure to virtually every subcategory of the asset class.
There are currently 16 subcategories represented in the portfolio, with the largest allocations belonging to pipelines at 22% and electric and integrated utilities at 20%.
Electric transmission and toll roads, at 9.5% and 7%, respectively, are the next largest allocation categories in the portfolio. "We're trying to be representative of the global economy." Mr. Rosenberg said.
Along those lines, the portfolio has less than 1% allocated to parking lots, as the fund tries to limit its exposure to commodities prices, Mr. Rosenberg said. "We're underweight parking lots because the end users are impacted by high commodity prices."
While about 80% of the portfolio is made up of foreign companies, there are domestic stocks making the cut, such as Novi, Mich.-based
ITC Holdings Corp. (ITC), a company founded in 2001 as a conduit for moving power from generators to local distribution systems.
The stock closed Friday at $53.14, down 5.81% from the start of the year.
In the pipeline category, there is
Oneok Inc. (OKE), a Tulsa, Okla.-based company involved in the purchase, transportation and storage of natural gas. The stock closed Friday at $44.92, up 0.34% since the start of the year.
From the fund's inception through Thursday, it was down 8.4%, which compared with a 14.7% drop in the S&P 500.
Questions? Observations? Stock tips? E-mail Jeff Benjamin at [email protected].
