Tag Archives: Ukraine war

Identifying Opportunities through Infrastructure

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Image Franklin Templeton/iStock

By Shane Hurst

Managing Director, Portfolio Manager,

ClearBridge Investments, part of Franklin Templeton

(Sponsor Content)

Last month, I wrote in Financial Independence Hub about infrastructure as an asset class and the opportunities it can provide for both retail and institutional investors.

I would like to follow up on this by explaining the process we use at ClearBridge Investments, and specifically the approach we take with the Franklin ClearBridge Sustainable Global Infrastructure Income strategy.

Our Global Infrastructure Income team is based In Sydney, Australia and manages funds in the U.S., U.K, Australia, Europe and Canada. Having launched in 2010, the strategy has built assets under management of US$4 billion.1

With inflation at multi-decade highs, war in Ukraine, not to mention the ongoing pandemic, risk management is front of mind for many investors. Adding infrastructure to a balanced portfolio of global equities and fixed income is designed to increase returns while decreasing risk.

Expertise in Infrastructure

Years of experience in the infrastructure space has allowed the ClearBridge team to develop the expertise required to select companies that are best placed to prosper over the long run.

With backgrounds in M&A and unlisted infrastructure, debt and equity financing, buy and sell trading, as well as government and regulation, the team constructs a portfolio of 30–60 listed companies where excess return, yield quality and risk assessment drive position sizing. Given that this is a sustainable fund, ESG integration is another crucial element, as it is for the firm overall: ClearBridge Investments was an early signatory to the UN Principles for Responsible Investment back in 2008.

Companies positioned to Succeed

In building the portfolio, the investment team scans the globe for high-quality, listed companies that are positioned to meet the strategy’s income and growth goals. Nextera Energy is one such firm. The largest renewable energy producer in the U.S., Nextera is made up of the parent company Nextera Inc., which owns a regulated utilities company in Florida, as well as Nextera Energy Partners, a yield-oriented renewables vehicle.

The firm’s renewables deployment is expected to increase by more than 50% over the next three years, so it is well placed to benefit from the move towards net-zero carbon emissions across the global economy. Nextera’s strong market position also provides competitive advantages that are driving equity returns that are well above the cost of capital, while its long-term contracts are supporting attractive dividend yield and dividend growth. As a leader in renewable energy, it’s not surprising that the company scores highly in the ‘E’ part of ESG, but it also excels in social and governance metrics too, with strong employee safety standards and excellent management and succession planning. Continue Reading…

The Ukraine war: a portfolio review

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By Duane Ledgister, vice president, CC&L

(Special to the Financial Independence Hub)

The daily escalation of the war in Ukraine is tragic, and the range of potential outcomes is unsettling. We are seeing a devastating humanitarian crisis and the human toll is immeasurable. Below we speak to some questions we have received and provide insights into how to best manage a portfolio.

Emerging market risks

Russia is one of a group of countries investors call ‘emerging markets,’ which reflects the stage of maturity and development of their economies and financial systems. Collectively, companies in emerging markets are an attractive source of growth for investors, despite their heightened risks. Stock markets in the developed world have comparatively low return expectations resulting from developed markets’ lower economic growth and higher valuations. At CC&L, our emerging markets strategy had a 2% weight to Russian stocks coming into the crisis. When considering this in the context of clients’ overall portfolios, this equates to less than one-tenth of one percent. Client portfolios have no exposure to companies in Ukraine.

What impact has the war had on portfolios?

While direct exposure to Russian and Ukrainian assets may be minimal, portfolios have not been immune to the volatility of the recent weeks caused by the war. Russia and Ukraine are important countries in the supply of commodities. Russia supplied approximately 12% of world oil and about 38% of Europe’s natural gas until the start of the war. Additionally, Russia and Ukraine — known as the breadbasket of Europe — provided roughly 25% of the world’s grain. Since the war began, commodity prices, particularly oil and gas, have shot up, acting like a tax on the global economy. This will put downward pressure on economic growth in many regions.

Context is key

It is important to understand the global economic landscape that was in place before the onset of aggression. The world was experiencing inflation levels not seen in decades, exacerbated by commodity underinvestment and global supply disruptions caused by the COVID-19 pandemic. Economic growth was riding high, boosted by the massive fiscal stimulus to offset COVID-19-related demand weakness. Continue Reading…