The BNY Mellon Global Infrastructure Income Fund is a thematic equity portfolio that seeks to generate a consistently high yield and attractive total returns through exposure to companies engaged in infrastructure and related operations. The concentrated portfolio places an emphasis on sustainable cash flow and blends non-traditional infrastructure opportunities with traditional infrastructure sectors.
1 August 2018
Why invest in this Fund?
1. High dividend income, capital preservation and upside participation: The fund seeks to achieve a consistent 6% equity yield, compelling capital preservation and attractive upside participation through investment in a variety of infrastructure related opportunities in developed and emerging economies. By investing at a global level, the fund is able to gain exposure to high cash producing mature projects and earlier stage growth assets. This results in a portfolio that includes a high yield component with a high growth sleeve, and bridges the trade-off between income and capital growth.
2. Dynamic, high-conviction approach coupled with a broad opportunity set: By focusing on key themes within the global infrastructure and real asset-related universe, the fund benefits from a broad opportunity set which, unlike global infrastructure indices, includes companies that are more aligned to advancement in social infrastructure. This broad opportunity set combined with a concentrated, high-conviction approach results in a differentiated portfolio versus peers.
3. Highly-experienced team backed by depth of research resource: The fund is managed by a small, focused, dedicated team with 19 years’ average industry experience. In generating ideas for the strategy, the portfolio management team is supported by a large global research function, conducting both quantitative and fundamental analysis.
Greater prosperity brings with it a greater propensity for travel. In China, for example, the rise of the middle class saw a more than twofold rise in passport ownership between 2011 and 2016.1
Previous holdings in the portfolio that have benefited from this trend include Beijing Capital International Airport, the second largest in the world by passenger traffic. In 2017, passenger traffic rose to a record of 95.8 million.2 From mid-2019 Beijing Capital Airport will shift focus to improving hub capability and smart growth when new airport Beijing Daxing opens.
1Source: Bloomberg News, 25 January 2018. 2Source: Centre for Aviation, 14 February 2018.
Consider the US’s ageing demographic. Seniors as a group are growing seven times as fast as the rest of the US adult population. Baby boomers – those born between 1946 and 1964 – visit the doctor 2.5 times as much and spend 5x more on healthcare. Unsurprisingly this presents a huge challenge for infrastructure provision both in terms of healthcare and senior housing.
The fund responds to this trend by investing into providers of senior housing and hospital real estate, with 2 holdings3 within the portfolio that respond directly to the theme of ageing demographics.
3Source: Mellon, as at 30 April 2019.
According to Jim Lydotes, portfolio manager with Mellon, there’s a question the investment team asked seven years ago on the inception of the BNY Mellon Global Infrastructure Income strategy. “Before we started running the portfolio we stepped back and asked ourselves: what are the main drivers for investing in infrastructure,” he says. “What are the attributes people look for in this space? We settled on three key things: regulatory predictability, businesses with stable underlying cash flows and owners of real assets.”
Traditionally, says Lydotes, infrastructure strategies have tended to allocate to an extremely narrow opportunity set focused almost exclusively on energy, transport and utilities. While those businesses offer those positive characteristics the investment team were looking for – they also felt this focus was too narrow.
Instead, says Lydotes, they researched the market to see whether there were other businesses that tended to be overlooked by traditional infrastructure investors yet still offered those characteristics. Initially the strategy’s investible universe encompassed around 350 stocks; today it sits at around 500 stocks globally – all of which, according to Lydotes, exhibit those desirable characteristics of regulatory predictability, stable cash flows and real asset ownership. Crucially, he notes that – while this investment universe is far broader than many of the strategy’s immediate peers – it doesn’t mean the portfolio lacks focus. At most, he says, the strategy owns around 30 stocks, so creating a high-conviction portfolio equating to just 6% of that wider investable universe.
Contrast that with traditional infrastructure strategies that typically own up to half of their investable universe. Says Lydotes: “That means we can be a lot more discerning about the prices we’re paying for the assets in the portfolio which in turn has led to a steady and consistent value exposure for our fund”
Again the contrast here is with the more orthodox infrastructure strategies. Since they have a narrower investment universe any flows into the sector tends to chase the same small subset of names. This has the effect of pushing up pricing, reducing liquidity and eroding differentiated performance.
Meanwhile, Lydotes highlights the power of long-term structural change and technological innovation to offer future upside to investors. One area he points to is the shift from 4G to 5G mobile connectivity. For the telecoms companies that formed the backbone of the strategy when it launched, this equates to a tailwind and a potential uplift in earnings, according to Lydotes.
“We believe a lot of the incumbent telecom operators who own their own legacy fibre network assets will be big players in this movement from 4G to 5G, and for the first time in decades, they’ll be able to put their prices up and monetise the investments they’ve been making,” he says.
Elsewhere, Lydotes describes the themes-within-the-themes in the strategy, which offer interesting areas to allocate to. One such area is senior housing, with two holdings within the portfolio that respond directly to the theme of ageing demographics. Says Lydotes: “In the US, you’re seeing a lot of the ‘baby boomer’ generation move back into the city for their retirement. This is a reversal of the trend for prior generations for whom a move away from urban centres to the countryside was generally considered the ideal. What that means is we’re going to have to build a lot of infrastructure from scratch to accommodate the needs of those septuagenarians and nonagenarians. At present, we don’t have the facilities in place to support that change.”
Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.
Mellon was formed on 31 January 2018, through the merger of The Boston Company and Standish into Mellon Capital. Effective 2 January 2019, the combined firm was renamed Mellon Investments Corporation.
1 Bernstein analysis and estimate, 2017
2 Source: Factset as at 31 March 2018.