Bertrand Cliquet has taken advantage of a plunge in US infrastructure firms’ share prices to increase his portfolio’s exposure to the region by 9 percentage points.
The market sell-off that plagued the opening weeks of 2016 hit US railway businesses severely, which Mr Cliquet believed led to buying opportunities. As a result, his Lazard Global Listed Infrastructure fund now has two US rail firms among its largest holdings.
CSX and Norfolk Southern are now at 7.9 and 7.6 per cent respectively of the fund. Union Pacific, another US-based rail company, is also a top-10 holding at 4.7 per cent.
Mr Cliquet, who works on the £774m vehicle alongside Matt Landy, John Mulquiney and Warryn Robertson, said US rail firms fell 20 per cent in the first three weeks of 2016.
“Our weight to the US went from 25 to 34 per cent. We seized the opportunity offered by the market in what we thought was an overreaction to increase positions,” he said.
This move was part of a wider trend that has seen the fund’s US exposure jump in the past year. At the start of 2014 the portfolio had only 14 per cent in the region.
Infrastructure assets had become highly valued in recent years as investors thought the low-interest rate environment would continue. As markets realised the Federal Reserve would raise rates, which it eventually did in December 2015, prices dropped back.
“The market became more aware and concerned that the US interest rate policy would change and that led to a large fall in North American infrastructure valuations,” Mr Cliquet said.
As of the end of March, rail firms were the second largest sector of the fund at 23.5 per cent, behind toll road operators at 24.4 per cent. Italy was the second largest regional allocation after the US, accounting for 22.4 per cent.
The fund’s largest holding at 8 per cent is in Italian toll road firm Atlantia, which owns about 60 per cent of the Italian motorway network.
Mr Cliquet predicted ASTM, another Italian toll road firm, would be the vehicle’s best performer this year, but liquidity constraints curtailed his ability to buy more of the stock.
Liquidity of the underlying businesses and assets remains a concern for some investors in the asset class, the manager added. “[Retail investors] should be [concerned about liquidity] if you think about what they invest in. It’s the nature of the product.”
Despite the falls seen in the US, the manager warned that some valuations remained expensive.
“There are assets that are attractive in a low bond yield environment and we think some investors might choose to overpay for those assets,” he said.
This fund only holds firms that own or have a long-term lease on key infrastructure assets, a policy that rules out maintenance firms.
“We’re not here to invest in maintenance companies because what you have with these is very short-lived contracts,” Mr Cliquet said.
“You don’t have the longevity element. Your contract will last just a few years and then it is up for retendering, and then you’re back to competing with peers. They’re not a monopoly and don’t have the asset intensity.”
