Ken Teale

Portfolio Manager

Nucleus Global Investors Pty Ltd


Investing in regulated utilities across the world, the WIOF Global Listed Utilities Fund gives investors access to a sector offering stability, high returns with relatively low risk, historic outperformance and outstanding resilience in even the most difficult of economic times.



The Fund invests in large listed utilities and infrastructure compa­nies in OECD countries with a long-term history of generating steady dividends and capital appreciation. Focusing on monopolies and oligopolies providing essential services to society, the Fund aims to provide steady returns, global diversification and liquidity by tapping the investment potential of companies which are conservatively geared but which generate strong operating cash flows.



Utilities have a set of natural advantages that make them a resilient investment opportunity and help guarantee stable returns. The backbone of modern societies, providing essential services, including power, gas and water distribution, utilities are natural monopolies and highly regulated, ensuring earnings stability, regardless of economic conditions. In most developed countries, government regulation sets the prices a utility can charge at a level which enables them to re-coup all the costs associated with providing these services to the public and also earn a return on equity of around 10% per year. A 10% return on equity is highly attractive for a sector which has such stable demand for its services and which does not face competition.



But what is relatively unknown is that utilities and infrastructure stocks have for decades outperformed general equity investments and carry a lower risk of capital loss. Over a five year holding period, an investor in utilities is very unlikely to lose capital while an investor investing generally in equities is over seven times more likely to incur a capital loss.


Incidence (in %) of Negative Returns by Asset Class: 1990 – 2011

While an investment in the UBS Developed Infrastructure and Utilities Index over the last ten years would have given an investor a return of 8% per year, an investment in the MSCI Global Equity index over the same period would have earned a paltry return of less than 1% per year. Data also shows that utility and infrastructure stocks have outperformed a general equity investment by 2% per annum over the last 20 years.


Annualised Return by Asset Class: 1990 – 2011

While utilities have also historically outperformed in economic downturns because demand for their essential services is relatively unaffected by recessions, the ability of the sector to maintain dividends during recessions is also unparalleled. For instance:

  • Gas and electricity utility American Electric Power has paid dividends every year since 1910.
  • Consolidated Edison, the electricity and gas utility for New York City, has paid dividends annually since 1924.
  • In 2008 and 2009, as much of the world slipped into a deep recession, most of the companies in our portfolio increased dividend pay-outs.



To maximise the opportunities offered by the sector, the investment manager uses a comprehensive investment process including top-down macroeconomic analysis and bottom-up valuation reviews. This multi-step process involves a complex study of up to 200 securities from its investment universe before risk and qualitative filters are applied to each. Following these checks, a portfolio of 30-40 holdings is constructed using a strict review process, including assessments of relative valuation and geographic and sector allocation.



Looking ahead to the prospects for the sector and markets for the next few months, the Eurozone debt crisis, which has already had a major influence on recent Fund investments, is likely to remain a dominant factor. The crisis in the Eurozone has now started to spread from “peripheral” states, such as Italy and Spain, to core countries such as France. The current situation is such that we now regard a banking crisis as almost inevitable while the Eurozone economy is probably already in recession, even though official figures do not show it yet. It is clear that at some point the Euro will blow apart, sparking large scale sovereign defaults (including Italy), returns to national currencies and forced state bailouts of insolvent Eurozone banks. But whether this happens in a number of months or a number of years is anyone’s guess. Over recent months the Fund’s holdings in continental Europe have been reduced to a minimum as the situation has deteriorated.  But in America, where the Fund has half of its holdings, the news is far better. The US economy has been growing steadily for some time, consumer confidence continues to climb, unemployment continues to fall and even the housing market is showing signs of a bottom. Whilst a deep recession in the Eurozone will be felt worldwide, exports account for only 10% of the GDP of the United States compared to 20% of the GDP of the Eurozone and 35% of Germany’s GDP. Therefore, a recession in Europe will have far less impact on the US than on many other countries. North America has vastly better economic prospects for the next few years than continental Europe.



The Fund’s investment manager is Nucleus Global Investors, one of a handful of specialist utilities and infrastructure managers worldwide. The members of its investment team are all specialists in the sector with experience gained not only from investing in utilities, but also in raising capital for the sector and in the management of infrastructure companies themselves.  The company headquarters are in Sydney.



This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 20th December 2002 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser / legal adviser / tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser / legal adviser / tax adviser, they should consider whether the WIOF is a suitable investment for them.