With global equity markets remaining volatile in 2025 – and the wider implications of the US ‘Liberation Day’ still highly uncertain for companies and the global economy – we want to highlight an area of our portfolios, in addition to our core fixed income allocation, that has shown resilience and which we believe continues to offer long-term opportunity for the patient investor. Importantly, we view this area as carrying a lower risk of permanent capital loss than global equity indices.
Our ‘Alternatives’ allocation, which includes Absolute Return and Real Assets strategies, has helped cushion portfolios during this period of volatility and produced healthy positive returns in a weak market. One strategy which has been particularly strong for our clients this year (and since we first purchased in 2019) has been the Clearbridge Global Infrastructure Income fund.
For those less familiar with the strategy, we provided an overview in our June 2023 update, including background on the investment team and how they define their infrastructure universe. While there may be some overlap with that update, it’s worth revisiting as a refresher.
The importance of working infrastructure and essential services has also come into sharp focus this week, following the widespread power outage across Spain, Portugal, and some areas of France.
Significant Secular Growth
Irrespective of the cause behind this week’s disruption in Europe, a simple reality remains; in an increasingly digital world, few of us are equipped to function without power for any meaningful length of time. At the same time, much of the world’s infrastructure is ageing and under strain. This serves as a timely reminder of the ongoing need for capital investment—both to maintain and to upgrade essential infrastructure. These are core services that cannot be overlooked.
As Ron Bousso, Reuters Energy Columnist notes in reference to this week’s power outage: ‘More generally, the outage is a reminder that current grids, particularly in developed economies, are old – very old. Many were built in the 1950s and require urgent upgrades if they are to handle the forecast growth in electricity demand in the coming decades as decarbonisation accelerates.’
In addition to maintenance of existing essential services, the sector is also poised for significant growth, driven by increasing electricity demand fuelled by AI related demand, data growth, decarbonisation, and re-industrialisation. This ongoing capital investment, whether upgrading or new projects helps drive returns for Infrastructure investors through the growth of their regulated asset bases from which regulated utility companies derive their returns.
As we’ve noted in previous updates, it is important to emphasise that these businesses are not simply “bond proxies”. Many have healthy, predictable earnings and are benefiting from structural growth drivers, making them a meaningful source of long-term return potential in a diversified portfolio, rather than just a source of income.
Low Sensitivity to the Global Economy
Clearbridge Global Infrastructure Income invests in listed infrastructure, with around 70% of its assets allocated to regulated and contracted utilities. These are typically essential services – such as water, electricity, and gas – that provide relatively stable income streams and exhibit lower sensitivity to broader economic fluctuations. Their performance is more closely linked to the growth of their regulated asset bases and the returns set by regulators, rather than to the direction of the overall economy.
Furthermore, as one of the Portfolio Managers of the strategy, Nick Langley, notes, these companies are potentially also less sensitive to a global trade war (bold is Tideway’s emphasis):
‘Regulated utilities, which are notable for their lack of exposure to international trade, as utilities businesses are for the most part locally regulated entities delivering essential services. Regulated utilities actually may benefit in that their capital expenditures involve a high component of imported products, from steel to copper to transformers. Should these items increase in price due to tariffs, this will increase the utilities’ asset base and therefore their earnings, assuming steady allowed returns from regulators.’
Performance/Portfolio Characteristics
Since Tideway first added the Clearbridge Global Infrastructure Income fund to client portfolios in March 2019, it has quietly proven itself to be a valuable from both a return and a diversification perspective.
Defensive Equity Characteristics
Over the past six years, the fund has kept pace with the IA Global Equity sector, though with a distinctly different return profile. Notably, the timing of peaks and troughs in the strategy versus broader equity markets diverges significantly. This is particularly helpful from a portfolio construction perspective, as having assets which are heavily correlated increases portfolio volatility.
That said, those who focus solely on return charts without understanding Clearbridge’s investment philosophy and process may have been tempted to reduce exposure in 2024 in favour of more conventional equity positions. This would have meant selling at precisely the wrong time, potentially undermining long-term portfolio returns.
The strategy has demonstrated strong downside protection, with a downside capture ratio of approximately 0.5 versus global equities. In practical terms, when global equity markets decline by 1%, this fund has typically fallen by only 0.5%. Meanwhile, upside participation has remained meaningful, with an upside capture ratio of 0.66 – participating in roughly two-thirds of equity market gains. Overall, the strategy has exhibited lower volatility than global equities, both on the upside and downside, while continuing to deliver competitive long-term total returns.
Active Management Matters
Clearbridge’s active approach has added further value. Since inception, the strategy has materially outperformed both its infrastructure-focused peer group and global infrastructure indices. Many of these indices have a heavier bias toward economically sensitive sectors and tend to correlate more closely with broader equity markets, reducing their defensive characteristics and usefulness from an overall portfolio perspective.
Market Conditions
The fund has typically performed well in environments where bond yields are relatively stable, and inflation remains moderate. While it was challenged during the sharp rise in interest rates that began in early 2022, the current environment—with yields already elevated and less likely to rise significantly from here—has been more supportive. As a result, although three-year returns appear muted, year-to-date performance has been strong, particularly on a relative basis in what has been a more difficult period for global equities.
A significant portion of the portfolio is expected to be able to pass through inflation, offering protection if inflation rises again. In such a scenario, this fund is likely to perform better than fixed-income securities, which are often negatively impacted by inflation in real terms.
Your Portfolio
- A core part of all Multi-Asset Portfolios for over six years – currently has a 4.5% weighting.
- Gains do not look large on valuations as income is either paid out or added to the book cost in the case of accumulation units. For further queries on this point, please feel free to get in contact with your wealth manager.
Summary
Growth Story: Continued maintenance and investment in essential services.
Less Exposure to Global Economy: More insulated from tariffs and any potential global recession.
Defensive Equity: Consistent Returns with a different return profile to core Global Equity markets. Useful inflation hedge.
Healthy yield for those taking an income: 5% Current Yield plus projected dividend growth of 4.5% – not bond proxies!
High conviction position: Alongside our global value managers on the Equity front and Credit (fixed Income), global listed Infrastructure remains one of our highest conviction strategies and largest positions.
