In the pipeline
Elsewhere, pipelines is another key position, benefitting from the development of shale resources in North America. This has led to significant growth in supply of natural gas, natural gas liquids and crude oil, which requires new infrastructure to transport it to end-users. “As the supply of natural gas in North America, Europe and parts of Asia grows and becomes more secure, natural gas consumption for power generation continues to build,” adds Frishberg. “It has become a fuel of choice due to its low cost and lower carbon emissions than other energy sources such as coal. The US petrochemical industry has also gained a cost advantage over global competitors by using cheap natural gas derivatives as feedstock rather than more expensive crude oil derivatives, ensuring demand for natural gas liquids keeps pace with the growing supply. “Owners of infrastructure involved in the processing and transportation of these resources, such as pipelines, are expected to benefit from growing supply and demand and the required infrastructure build out.” Looking at recent performance, the fund has benefitted from large holdings in several North American energy pipeline stocks, such as Enbridge and Spectra Energy. Australian stock Transurban has also outperformed, as the market appreciated its highquality portfolio of toll roads in Sydney and Melbourne. Other contributors have included Tokyo Gas and West Japan Rail, driven by their own sound performance and the revival of the Japanese equity market. In the UK, holdings in National Grid and Centrica were both up more than 20% in the 12 months to end August, as was Beijing Enterprises, the monopoly supplier of gas to the growing Beijing market. Frishberg names Transurban and Enbridge as among his favoured holdings, also flagging Southern Co in the US. “Transurban has long-dated concessions that contain embedded inflation protection, with strong earnings-driven dividend growth forecast in the next few years,” he adds. “Meanwhile, Enbridge’s well-positioned pipeline network gives it a competitive advantage to deliver a growing volume of production from the Canadian oil sands and emerging US shale to multiple markets. Enbridge transports around 53% of USbound Canadian production, or roughly 15% of total US imports. “As for Southern Co, it is one of the largest utilities in the US, producing and distributing electricity to 4.4 million customers through the south-east. It is regarded as one of the highest-quality utilities in the US – in terms of asset base and management team.” Looking to the future, Frishberg says infrastructure companies are attractively priced and many trade at a significant discount to comparable assets in the unlisted market among specialist institutional investors.
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