- Josh Duitz co-runs the Aberdeen Global Infrastructure fund, which has beaten 99% of its peers.
- Duitz believes that Biden’s infrastructure plan will benefit the industry regardless of its outcome.
- He shares 6 stocks set to benefit from the $2 trillion package and his 4-part investing strategy.
- See more stories on Insider’s business page.
Since President Joe Biden last week unveiled the long-anticipated infrastructure plan, investors have been scrambling to find out which stocks in their portfolio might stand to gain from the multi-trillion-dollar package.
Not Josh Duitz, who co-manages the $50.3 million Aberdeen Global Infrastructure fund, which has beaten 99% of its category peers to deliver a 10.96% annualized trailing return over the past five years, according to Morningstar data.
Duitz has been investing in infrastructure assets for the past 12 years and has owned everything from airports to cell towers. For him, a bill to rebuild America’s infrastructure is long overdue, but he sees some parts of the plan facing resistance as the Republicans and Democrats debate the definition of infrastructure.
But whether the plan gets passed in whole or in parts hardly matters to infrastructure investors like Duitz.
“There are several tailwinds for the infrastructure industry, and this bill really just accelerates them,” he said in an interview. “We don’t know what’s going to be passed, but I think it helps on the margin for many of our infrastructure investing themes.”
Duitz explains that the transition to clean energy such as solar and wind and the build-out of the fifth-generation mobile network technology have been two of the biggest driving forces for the infrastructure industry in recent years.
“We saw major companies invest in renewables and increase that annual growth potential in renewables by two to four times, and we saw through 5G the need to expand the high-speed broadband,” he said. “I think this bill not only helps with that macro theme but it’s also going to accelerate these investing trends.”
A 4-part strategy and 6 stock picks
As seen in the infrastructure bill, the vast industry encompasses everything from fixing highways and upgrading airports to building electric vehicles and charging stations.
Duitz distills it down into four big sectors — transportation, communication, utilities, and energy.
Spanish multinational Ferrovial, which owns parts of the King’s Highway 407 in Canada and Heathrow Airport in the UK, is the best way to play the transportation theme, according to Duitz.
The Madrid-based company also manages lanes in the US and has taken an innovative approach to traffic management in Texas.
For example, Ferrovial built two to three additional lanes next to free roads such as the LBJ expressway. These added lanes have something called congestion pricing, which means that the tolls would change in real-time based on traffic conditions.
“The goal is to keep traffic moving 45 to 50 miles per hour on those and it effectively reduces congestion, so that’s why we really like them,” he said. “During the pandemic, there’s less travel and commuting and that has hurt them, but we still like the opportunities there.”
In the communication sector, Duitz is most bullish on Cellnex Telecom, a Spanish wireless telecom infrastructure company. The largest independent operator of wireless towers in Europe has benefitted from the increasing willingness of cell-tower companies to sell and monetize their towers.
“Cellnex has been a consolidator of choice,” he said. “We like that because they had that inorganic growth from buying cell towers, and they also had organic growth from data grown 30% to 40% per year, and then everything moving from 4G to 5G.”
In utilities, Duitz picks German renewable energy company RWE as his top choice.
“The stock has not run off as much as the others and its valuation is attractive,” he said. “They are early in renewables and they have the expertise to continue, I think that has been a competitive advantage for them as they are building up their renewable assets to be one of the largest players.”
On the energy side, he likes midstream pipeline companies Enbridge and Williams Companies.
“Last year, oil was extremely volatile and prices went negative, but the earnings of those companies are still pretty steady, and to me, that’s the type of company we’re trying to invest in,” he said. “We’re trying to not have too much commodity exposure because I can’t predict the prices of oil and other commodities.”
A defensive, inflation-resistant asset
Sharp observers may have noticed that the red-hot electric vehicle industry is not part of Duitz’s infrastructure investing strategy, and that’s because he prefers to stick to the defensive and inflation-hedging parts of the asset class rather than predicting the winner of the EV race.
“The companies that we’re investing in own the assets, we like the steady and predictable cash flows of those assets and that’s the nice dividends that they pay,” he said. “These are also defensive assets because they are necessities and people will use their utilities no matter what happens.”
Many of these assets also have embedded inflation protection. For example, companies can continue to raise tolls on highways based on inflation.
On the EV side, Duitz is more interested in battery storage systems than pure-play EV-makers.
One of his picks to play this theme is NextEra Energy, a Florida-based energy company that has invested heavily in battery storage.
“That’s where we would like to benefit, where we actually have contracts for five to 15 years and get stable predictable cash flows rather than trying to choose who’s going to win on the technology side,” he said.
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