We wanted to share an article from Magellan which explains the rationale behind Magellan’s definition of the Investable Infrastructure Universe and why there is at times a variance of the Fund’s performance to the Index, in this case the S&P Global Infrastructure NTR (Net Total Return) Index.

Magellan believes infrastructure investors should seek a high degree of confidence that their wealth will grow and be protected. However, the commonly used definition of infrastructure focuses only on whether the asset provides an essential service. We believe delivery of essential services alone is not sufficient to meet an investor’s objectives in infrastructure. To this end, Magellan includes in its investment universe only companies whose services are essential to communities and where earnings are expected to be predictable. In practice, this means the companies in Magellan’s investment universe have limited exposure to variables outside the companies’ control which means the earnings generated by Magellan’s investment universe are generally highly reliable, providing confidence that the long term returns to investors are similarly reliable.

Magellan excludes from its investable universe a range of companies that other investors routinely include. This is due to both the predictability of earnings and risk profile of these companies. Most notably, Magellan excludes companies whose earnings are directly affected by oil prices. This exclusion means the investment performance of Magellan’s infrastructure strategy should benefit from a tailwind when oil prices are declining and will face a headwind when oil prices are rising.

The table below shows the Impact of Changes in Oil Prices from 2014 to 2023 on the performance of Magellan Infrastructure (Hedged), S&P Global Infrastructure Index, Alerian MLP Index1 and MSCI World Index.

 

Please click here to read the full article.