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Planes, freight trains and automobiles drive First State fund
A mild winter in the US and fears over Chinese growth have hit train operators, but growth in other areas makes the sector a good bet, says Peter Meany.
Peter Meany has been adding to his three freight rail holdings again after what he believes was too harsh a sell-off in the sector.
Meany, who runs the First State Global Listed Infrastructure fund, initially sold US railway operator CSX late last year after it had enjoyed a strong run over two or three years, but since the start of 2012 he has rebuilt the position after the sector was hit by a raft of concerns relating to the transport of coal.
The Citywire Selection fund also has 3% fund stakes in top 10 holdings US rival Union Pacific and Australian freight rail firm Asciano.
US coal decline
The movement of domestic coal in the US has seen a major decline in the past few months after a very mild winter and the rise of burning shale gas as an alternative energy source. Coal freight volumes are down almost 15% this year.
However, Meany believes the market is overlooking the strength of freight across other sectors of the recovering US economy: 'In the last quarter rail stocks have been depressed, but the market is missing the fact that much of the economy is doing well. The housing, industrials and autos sectors are all picking up, albeit from low bases so overall [US] freight volumes are marginally up,' he said.
Since launch in October 2007, Meany has seen six of his holdings bought out at a premium by sovereign wealth and pension funds, with five of those six in the last 18 months, and at an average premium of 30%.
Similarly, Meany says that Australian firm Asciano has been sold down on fears over Chinese growth and devastating floods in Australia. 'What we have learnt from China is that it is a managed economic system so if there is a slowdown in demand they will build infrastructure, so they are reducing restrictions on infrastructure developments,' he said.
Sticking with toll road exposure
Meany is continuing to back two of Europe's biggest toll road operators – Italy's Atlantia and France's Vinci – which make up 4.5% and 5.9% of the fund respectively.
The stocks have been sold down over the past few months on eurozone fears, but as a long-term investor Meany has been maintaining hs exposure on market falls.
'They have had a tough time, but are still delivering good free cash flow a very strong dividends. These two franchises provide essential services in Italy and France and own thousands of miles of motorways. Both are trading below 10 times one year earnings and are on 8% yields so it would be ludicrous to sell them,' he said.
Mobile towers: structural growth story
The best recent fund performance has come from Meany's exposure to US mobile phone tower builders such as top-10 holding Crown Castle and stakes in Paris and Zurich airports. The latter two have now been reduced on concerns over declining air passenger numbers.
'They are still holding up well and retail returns are very strong, but airlines are in a very tough environment so we thought it prudent to reduce our exposure,' he noted.
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