Investment trust insider on US infrastructure – James Carthew: Power up your portfolio with US infrastructure trusts
While there may be some political noise in the run up to the presidential election, the long-term case for investments in US renewable infrastructure is pretty solid.
While all eyes have been on the meteoric rise of Nvidia, whose 121% gain over the first five months of 2024 is the third-best of all S&P 500 stocks, you may not have noticed that its index peer Vistra, a power company based in Texas, soared 157%.
Vistra is one of the largest power companies in the US, with 41 gigawatts of generation capacity serving about 5m customers. While it still has some coal plants and a presence in natural gas-fired generation, increasingly its focus is on low-carbon alternatives including nuclear and solar.
Vistra is a top-10 holding for Ecofin Global Utilities and Infrastructure (EGL), as is the fourth-best-performing S&P 500 stock, Constellation Energy, which is up 86% year to date. Positions such as these have helped the trust achieve a double-digit net asset value gain over the past six months but fund manager Jean-Hugues de Lamaze thinks that there is plenty more to go for.
In part, the 4.5%-yielder has been recovering from the effects of higher interest rates. The utilities and infrastructure sectors are often thought of as a collection of boring stocks that might offer a decent yield but not much in the way of capital growth. Consequently, they are deemed to be sensitive to interest rate movements and when rates started to rise, the sector suffered.
Ecofin Global’s main competitor Premier Miton Global Renewables (PMGR) was hit harder by this, but even now, when the picture on interest rate cuts is becoming clearer, Ecofin Global’s returns have continued to outpace those of its rival.
Over the five-year period to 31 May, the trust generated underlying returns of 66%, well ahead of the MSCI World Utilities index’s 35% and the S&P Global Infrastructure index’s 27.4% gain. It also beats the Premier Miton Global Renewables ordinary shares’ 25.6%, which were geared by the trust’s zero dividend preference shares.
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