Manager Views

Investing in infrastructure can produce a stable income flow

Most investors consider a dividend yield of 4.3% to be quite a healthy return in the current low interest rate environment. That’s the dividend yield on Mackenzie Universal Global Infrastructure Fund as of August 31. But that’s just the dividend component. The fund returned 11.1% for the year ending September 30, outpacing the S&P Global Infrastructure Index (CDN) which returned 2.8%. In the attached article Mark Grammer, portfolio co-manager, Mackenzie Universal Global Infrastructure Fund, discusses the fund and his investment strategy.

Would you buy into an industry where $1 trillion is invested in new projects annually? That’s how much the World Bank says is being spent each year building and expanding infrastructure: from pipelines, to ports, hospitals and airports. These things are the backbone of the global economy and surround us everywhere we go, whether it’s the freeway we ride on to work or the nuclear generator powering our city. Spending is expected to accelerate in the sector over the next decade as a billion people are added to the Earth’s population, incomes in the developing world rise and Western governments attempt to close the “infrastructure gap” that was created after years of neglect.

Despite its size, for years individual investors had difficulty investing in the infrastructure sector. But the barriers to entry came down in 2007 with the launch of Mackenzie Universal Global Infrastructure Fund, the first product of its kind to in Canada to give investors full access to the industry.

What is the objective of the fund?

Grammer: Infrastructure like toll roads and power stations produce stable long-term revenue flows, and the objective of the fund is to provide investors with a stable, steady source of income.

Please give us an overview of the fund

Grammer: “This is a well-diversified fund that holds a lot of different kinds of companies. We have rail stocks, gas pipelines, power utilities, and companies that make transmission and distribution equipment. We have healthcare, hospitals, and we even have a school in the fund.

How do you select companies for the fund?

Grammer: We screen for companies that pay dividends of over 5%, but there are numerous infrastructure companies in Europe right now trading with yields in excess of 6%. And that’s 6% in an environment where you’re getting zero percent interest rates.

Do you have an example of a specific company in the fund you like?

Gammer: E.ON, which is the biggest utility in Germany. It’s currently yielding 6.5% and that’s a 6.5% yield on a company that is very well managed.

How will the fund perform in a slow-growth environment?

“We’re basically in a zero interest rate environment around the world, and I don’t see that changing in the near future. There’s too much idle capacity in the global economy to have long-term systemic inflation. So I expect the fund to perform well in these conditions.

There are concerns that inflation will return.

Grammer: In fact, infrastructure tends to do well in a high inflation environment as well, because these types of companies often have inflation protection.