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RISK FACTORS

This is a financial promotion for The First State Global Listed Infrastructure Strategy. This information is for professional clients only in the EEA and elsewhere where lawful. Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
  • Currency Risk: Changes in exchange rates will affect the value of assets which are denominated in other currencies.
  • Single Sector Risk: Investing in a single sector may be riskier than investing in a number of different sectors. Investing in a larger number of sectors helps spread risk.
  • Charges to capital risk: The fees and expenses may be charged against the capital property. Deducting expenses from capital reduces the potential for capital growth.
  • Listed infrastructure risk: Investments in infrastructure may be vulnerable to factors that particularly affect the infrastructure sector, for example natural disasters, operational disruption and national and local environmental laws.

For details of the FCA authorised firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information below.

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund.

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

Why active
management is critical

Why investors especially benefit from the right hands-on approach 

Few debates rage hotter in investing than active versus passive. Which is better from a risk management standpoint? Which provides better returns?

That’s not a debate for now - many intelligent people along the way have tried, and failed. But when it comes to infrastructure investors can benefit greatly from utilising an appropriate smart active strategy.       

Obviously, as an active manager we are talking our book. But we truly believe that when it comes to infrastructure, the right manager can make all the difference. Here are a few tips on how to find one that's right for you:

Tip #1: Find a specialist 

As we often tell clients, infrastructure is a niche market of niche markets. Utilities, air transport, mobile towers, toll roads, power stations… each is a highly-specialised sector, consisting of its own unique technologies, operational constraints, and process solutions.

Successfully navigating the lot requires not only a significant amount of subject matter expertise, but also a keen sense of the nuances between sectors. Plenty of opportunities to capture alpha exist, but only if you know where to look.

That's why it's critical for investors to partner with an infrastructure specialist. You need someone who does their due diligence homework, who can keep up with shifting regulatory regimes and macroeconomic trends. Someone with the connections to stay informed of new companies and projects, and the bandwidth to research promising developments as they occur. Someone with enough knowledge and experience to understand the long-term perspective, rather than be tossed about by short-term market sentiment. Simply put, specialty markets require specialty knowledge.

Tip #2: Stay off the beaten path

Few passive infrastructure investment vehicles currently exist. Those that do often over-allocate to well-trodden sectors, such as utilities and transportation companies. In addition, many maintain substantial weightings in U.S. companies, to the exclusion of other developed markets or even emerging economies.

Yet infrastructure encompasses more than just power plants and toll roads. Essential services in today's society include everything from sanitation plants to cell phone towers, from railroad operators to port terminals. Furthermore, the infrastructure build-out happening right now in India and China can be just as compelling an investment story as the imminent American one.       

A truly diverse, representative approach to the space – the kind that harnesses all the income-generating, inflation-protecting potential that infrastructure has to offer – requires a much broader viewpoint. It means thinking outside the utilities box and widening the available investment universe.

That's where a smart active manager can help.

a good active manager can assess all the opportunities available across all infrastructure verticals. They will establish a rigorous, disciplined screening process to evaluate this investment universe, and identify where holes in representation exist, or where one sector is over- or under-weighted.  

Furthermore, an active manager can often offer additional potential for diversification by investing in non-benchmark stocks, which would be off-limits to a passive investor.

Tip #3: The Best Defense Is a Good Defense 

Most investors who allocate to alternative assets such as infrastructure aren't looking for "shoot-the-lights-out" performance. They want defensive strategies, capital preservation – portfolios that hold up in down markets.

As an income-generating asset that's immune to economic cycle, infrastructure is inherently a defensive play. But investors must navigate the space with care.

That's because when you're dealing with essential services, risk is not a theoretical; geopolitical, economic, and event risk all have clear and concrete impacts on returns. Moreover, individual infrastructure sectors are each subject to their own set of unique risks. Renewable energy, for example, is existentially vulnerable to shifts in the political climate; while the viability of mass transit can hinge on energy price volatility or on the frequency of terrorist attacks. 

Not to pick on passive investment here, but index investments generally offer little agility when it comes to protecting against downside risks, unless risk management is already part of the index strategy.

Active management, however, can truly shine in down markets. Experienced active managers can help steer your portfolio through any number of scenarios, from a collapse in oil prices to a rise in interest rates. They know how to evaluate risk by country, region, industry, sector and regulatory regime, and how to adjust the portfolio where and when the need arises.

In fact, at First State, capital preservation is what we're known for: over the past twenty years, we've captured the most alpha for our clients in down markets.

Finding The right Manager: A checklist

In infrastructure, finding the right active strategy is key. Use this checklist to help you evaluate potential active managers:

  • Is your manager a specialist? Do they have the experience and the connections to truly understand the markets they're investing in?
  • Does your manager have perspective? Do they look for opportunities beyond familiar sectors and consider the total investment universe?
  • Does your manager play defence? Do they believe infrastructure is inherently a defensive play, and manage risk accordingly?