For investors looking to take advantage of the opportunities in emerging markets, infrastructure is an attractive way to do so and there is no better time than now, according to CEO/CIO and portfolio manager at 4D Infrastructure, Sarah Shaw.
“Population growth, the emergence of the middle class and the energy transition are three thematics in infrastructure that are contingent on emerging markets,” says Shaw.
“The majority of population growth globally is coming from the emerging world, which is placing pressure on emerging market governments to invest in infrastructure to support those growing populations and their needs.
“The emergence of the middle class in developing economies is also a significant opportunity within infrastructure. Not only is it a driver, but it is also a first beneficiary of improved living standards.
“Lastly, we have the energy transition. The global goal of net-zero carbon emissions is not achievable without the right forms of infrastructure investment across both the energy and transport sectors in both the developed and emerging worlds – the emerging markets must be on board.
“As an investor, I'm keen to capitalise on these thematics and a superior demand outlook while mitigating key risks to emerging market investment. Infrastructure allows us to do this.”
Shaw believes that in a global portfolio, emerging markets are too important to ignore.
“Infrastructure is 100 per cent correlated to the in-country domestic demand story, while at the same time hedging against key emerging market risks including inflation and sovereign risk.
“In order to successfully invest in emerging markets, you must be on top of what is happening in these markets. At 4D we have a unique integrated process for investment, whereby country risk analysis is combined with individual stock analysis in a single analytical cycle.
“An investor willing to capitalise on the opportunity via direct investment into emerging markets is currently accessing this theme at very attractive valuations, both on an absolute basis (compared to their developed peers) but also relative to historical ranges.
“We expect further outperformance as the market starts to recognise the disconnect between share price and fundamentals.
“The opportunities emerging markets are offering are just too attractive to ignore when you're looking at a global portfolio allocation. We believe there is still a significant amount of growth potential and strong absolute performance to come,” says Shaw.
The 4D Emerging Markets Infrastructure Fund has been nominated as a finalist for the 2023 Financial Newswire/SQM Research Fund Manager of the Year Awards.
The nominations are based on investment performance in the last financial year, with the winners announced on 14 September.
The fund returned 19.55 per cent over the 12 months to 30 June 2023, compared to the benchmark’s 15.43%.*
* Performance figures are net of fees and expenses. Benchmark is the OECD G20 Inflation Index + 8%. Past performance is not indicative of future performance.
The content contained in this article represents the opinions of the authors. The authors may hold either long or short positions in securities of various companies discussed in the article. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the authors to express their personal views on investing and for the entertainment of the reader.
