King is New York-based managing director and portfolio manager of the Morgan Stanley INVF Global Infrastructure Fund – the Ucits version of the strategy. He defined infrastructure as an essential service to society and to the economy.
The details of Donald Trump’s pledge to spend up to $1trn on US infrastructure have yet to be formalised and approved, but King said based on what is known, there may be some winners.
Trump favors offering tax credits to companies building infrastructure, however, there will likely be some direct government financing of projects as well.
“A change in the tax structure should benefit relevant companies domiciled in the US,” King said.
It’s less clear which companies are positioned to gain from taking on actual building projects, he said. Transportation companies responsible for roads and highways are likely to see new orders, although some of the most prominent toll-road builders in the US are actually companies of European or Australian origin. King declined to name specific companies.
One area that could do better than expected is renewable energy companies. On the campaign trail, Trump was a climate-change denier, and his election prompted market selling of renewable energy stocks. But some companies in wind, solar and hydroelectricity are now competitive enough that they don’t need subsidies. US state governments still maintain standards for renewable energy.
“As value investors, when macro news causes investors to retreat, we look at this as an opportunity to buy more of those companies that we like,” King said.
Investment strategy
King and his team are bottom-up stockpickers, with a bias toward value. They base their picks on long-term views that mesh with the multi-year (or multi-decade) business cycle for many of the portfolio companies.
More specifically, he invests in non-state-owned listed companies that enjoy embedded demand and command high barriers to entry, either through regulation or through the nature of their contracts with counterparties.
This often means a focus on companies in the middle of the ecosystem, “serving as delivery systems or transportation networks for the energy, communications and transportation industries,” King said.
The aim is for a portfolio of companies with relatively steady and stable cash flows.
The fund’s portfolio has the highest sector exposure to oil and gas, with a 31% allocation, according to the fund’s factsheet from October 31. The top three holdings in the fund are Enbridge Energy Management (9.55%), the UK-based infrastructure developer John Laing Group (5.42%) and communications infrastructure builder American Tower Corp (5.23%).
Infra investing involves constant regulatory, particularly in emerging markets where regulatory bodies are relatively young and inexperienced, or where contract law is unreliable. Currently, around 50% of the portfolio companies are in the US, 30% are in Europe and 20% are in Asia and Australia. The fund’s largest EM exposure is to China at around 6%.
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Three-year performance of the Morgan Stanley Global Infrastructure Fund Class B versus its benchmark, the Dow Jones Brookfield Global Infrastructure Index:
