Alex Araujo, manager of the M&G Global Listed Infrastructure fund, shares why infrastructure should be a key component of an investor’s portfolio. In his interview with the FundCalibre team, Alex explores the different types of infrastructure in the fund – economic, social, and evolving – and how they provide essential services while offering stable cash flows and long-term growth. He shares insights on the impact of rising interest rates, the energy transition, digital infrastructure’s rapid expansion and the geopolitical factors influencing the sector.
Why you should listen to the interview: Infrastructure is more than just roads and bridges – it’s a dynamic investment opportunity with resilience, diversification, and long-term growth potential. Alex Araujo breaks down the key themes shaping the sector, from AI-driven data centres to energy security. If you’re looking for resilient investment opportunities that can weather market shifts while offering long-term benefits, infrastructure may be worth considering.
This interview was recorded on 20 February 2025. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Keeping economies running
“So if we think about your everyday life, when you wake up in the morning and you start making use of your utility services, for example, your water supply, your gas supply, your electricity supply, you’re calling on infrastructure assets and their critical nature for the smooth functioning of economies and societies. We have a number of exposures in the more economic infrastructure realm, including utilities which also encompass energy security and the energy transition, which is obviously a very important large scale structural theme.
“We have energy infrastructure that is oriented towards the movement of products, the storage of products including gas. And we have transportation infrastructure exposures, which covers everything from toll roads and airports to public transit networks. So, as you can see, as you’re moving through your day, you’re starting to make use of all of these infrastructure assets. And our reliance upon these types of assets is reflected in the consistency and reliability of the cashflow streams that they generate.
“We extend the definition of infrastructure in our own strategy to social infrastructure, which would include things like hospitals and schools and so on. And we have a more modern interpretation of infrastructure in one of the segments that covers things like digital infrastructure, which would include data centres, which of course are critical to the development of artificial intelligence capabilities. And all of these things wrapped together in a global strategy gives a highly diversified set of exposures to assets that are critical and long life in nature.”
The fundamentals remain as strong as ever
“In my mind, interest rate movements have disproportionately, and I would argue unfairly, punished valuations in this asset class. But companies themselves continue to do very well and grow their income and grow their dividends. Yet the market is, as we all know, obsessed with certain pockets of the equity market and leaving behind, ignoring and indeed punishing some of the less, I suppose, less exciting opportunities, in some eyes. I find it very exciting, but perhaps even considered defensive types of of exposure such as the ones we have in the fund.
“So the asset class itself has underperformed the global equity market for more than two years. Part of that is interest rates. In fact, I’d say most of it is interest rates. And I don’t want to suggest that the interest rate environment is actually punitive to the companies themselves. They actually are doing relatively well in the circumstances. It’s more of a market sentiment and relative valuation story that I see having unfolded in the last couple of years. And that’s been a record as far as we can tell for how long the asset class has underperformed the broader equity market.
“Up until a couple of years ago, in fact, on the five year anniversary of the strategy the total return performance was actually in excess of the broader equity market, which we were very proud of. So we’ve had a deep reversal, and I would have to think that ultimately we will have a normalisation. I do believe that a return to less concern around interest rates will help as will a general rotation within the equity market back towards sectors such as the ones that are mainly represented in the fund.”
“We offer a combination of both income and growth”
“The income yield, the dividend yield, is generous relative to the broader equity market. It sits today at a little over 4%, but it’s not through the roof. It’s actually quite easy to find high yielding infrastructure assets out there. But we focus on the ones that have structural long-term growth prospects that centre around new and better infrastructure investments, the energy transition and energy security, as I mentioned, structural growth in emerging markets, social and demographic needs, for example. And then of course, the digital infrastructure side, which is growing very quickly. So it is a combination.
“I would say that we have a quality bias because we’re fixed asset investors, obviously only investing in listed instruments, but those companies themselves have fixed assets, fixed physical assets at their core, which bring them some form of strategic advantage, such as barrier to entry, oftentimes related to a physical barrier to entry.
“If you think of, let’s say Heathrow Airport, which has the prospect of expanding, there’s a growth opportunity there. Whether it happens or doesn’t happen, it’s still a critical asset and nobody’s going to build an airport anywhere close to Heathrow to compete with the traffic that comes in and out of one of the busiest airports in the world. So this is the kind of positioning that we look for in the companies and their underlying assets.
“And where that growth ultimately gets expressed is by way of the dividend growth objective, which then translates to an income growth objective for our investors. And that dividend growth needs to be driven by cashflow growth, earnings growth that is progressive and sustainable.”
Conclusion: Infrastructure investing offers a unique blend of stability, income, and growth potential. As the world evolves through digital transformation, energy transition, and rising infrastructure demands, these assets remain critical to economies and everyday life.
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