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Global Listed Infrastructure
As of July 31, 2010
We would like to share with you our review of the global infrastructure securities market as of July31, 2010. For the month, the UBS Global 50/50 Infrastructure & Utilities Index had a total return of+8.3%(net of dividend withholding taxes). Year to date, the index had a total return of –3.0%.
INVESTMENT REVIEW
Global infrastructure stocks rebounded in July as risk factors that contributed to a selloff in equities subsided. Europe showed signs of stabilization as bank stress tests showed better-than-expected results. Although the conclusions were met with some skepticism, investors welcomed the improved transparency. The markets also rewarded the ability of some governments to issue debt, as Greece, Spain and other countries were able to issue debt at favorable terms.Infrastructure companies outperformed the broader market, which had a total return of +8.1% as measured by the MSCI World Index.
The quarter saw further evidence of governments using infrastructure asset privatizations as a tool to help mend strained balance sheets and rising budget deficits. Russia announced a privatization program that includes selling railway assets and hydro-electric power facilities and activity is accelerating in the United Kingdom, Portugal, Greece and Spain.There has also been a pickup in mergers and acquisitions that is likely being driven by pension funds and private equity investors eager to deploy capital, and by underperforming companies that need to sell assets to improve their profitability. Hong Kong-based Cheung Kong Infrastructure (CKI) offered to buy U.K. regulated electric utility EDF Energy Networks from Electricite de Francefor £5.8 billion ($9.1 billion).
Toll road companies(which had a total return of +9.9% during the month) 1 generated the highest returns. Intoll Group, an Australian toll road operator, surged after the Canada Pension Plan Investment Board offered A$3.5 billion ($3.1 billion) for the company. Ferrovial, a Spanish toll road operator, rebounded as European equities recovered during the month.
Airport company performance (+7.9%) remained strong due to air traffic growth that continues to be above expectations. Both European- and Australian-based companies did well during the month. Marine ports (+5.2%) and electric utilities (+5.3%) rebounded, in line with the broad recovery in European equities; most of the marine port operators in the index are domiciled in Europe.
The railways subsector (-4.4%) was the only industry segment to decline during the month. A defensive group comprising three Japanese passenger railroad companies, it sold off at a time when the market was willing to take on riskier assets.
INVESTMENT OUTLOOK
We continue to believe that the pace of economic recovery will slow and have positioned the portfolio accordingly. Our weighting in defensive subsectors, namely regulated utilities, has increased and we have pared our allocation to those that are more economically sensitive, notably marine ports and toll roads.
The recent uptick in asset privatization plans validates our thesis that governments—due largely to fiscal constraints—cannot by themselves provide efficient infrastructure services for their citizens, and that they will need to bring in private capital. Russia has now joined Greece, Portugal and the United Kingdom in planning to put state-owned assets up for sale as part of a goal to repair their impaired balance sheets. This is a positive development, and we believe there will be increasing opportunities for our companies to benefit from these efforts.
1 Sector returns are in local currencies as measured by the UBS Global 50/50 Infrastructure & Utilities Index.
Past performance is no guarantee of future results.
The performance information in the preceding commentary does not reflect the performance of any Cohen & Steers Fund. Fund performance information is available through the link or links below.
Cohen & Steers Global Infrastructure Fund Performance
Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A prospectus containing this and other information can be viewed by clicking here or may be obtained by calling 800-330-7348. Please read the prospectus carefully before investing. Cohen & Steers open-end funds are distributed by Cohen & Steers Securities, LLC.
The views and opinions in the preceding commentary are as of the date of publication and are subject to change. This material should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment.
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