Developed Markets Infrastructure Income Model March Commentary

Key Takeaways

• Infrastructure saw a positive month of returns in March, outpacing both global equities and U.S. equities, which were weaker amid higher policy uncertainty, specifically around tariffs.

• Infrastructure’s defensive nature was rewarded in this environment, with regulated utilities leading returns, in particular in Europe and North America.

• Trump’s policy agenda has so far been more disruptive than expected, and we anticipate uncertainty will weigh on U.S. growth. However, other regions such as Europe may see improving growth through a potentially constructive fiscal agenda across the region.

Market Overview

Infrastructure saw a positive month of returns in March, outpacing both global equities and U.S. equities, which were weaker amid higher policy uncertainty, specifically around tariffs. The AI trade, which worked well throughout 2024, continued to unwind following concerns around China’s DeepSeek AI model representing a cheaper alternative to U.S. models. Infrastructure’s defensive nature was rewarded in this environment, with regulated utilities leading returns, particularly in Europe and North America.

Tariff fears have also been exacerbated by signs of slowing growth, raising recession concerns. Accordingly, bond yields have notably come down in 2025. This has been a boon to rate-sensitive communication towers, which have also benefited as the narrative around improvement in leasing has begun to get support. Lower bond yields have also been helpful for renewables, which had a positive month of March. Tariffs and recession concerns were negative for North American rails, which are GDP-sensitive.

Portfolio Highlights

Our global listed infrastructure strategies outperformed global equities and relevant infrastructure benchmarks for the month.

On a regional basis, Western Europe (+1.81%) was the top contributor for the month, with German electric utility E.ON (+0.50%) the lead performer. E.ON is a European electric utility company based in Essen, Germany. It runs one of the world’s largest investor-owned electric utility service providers and is the largest distribution system operator in Germany. Across Europe, it has 47 million customers. The Germany Infrastructure Fund bodes well for the investment environment across German electricity network, of which E.ON is a beneficiary.

Turning to North America, U.S. communications company Crown Castle (+0.46%) also performed well.

Crown Castle is the leading independent owner and operator of wireless communications infrastructure in the U.S. with a portfolio of approximately 40,000 towers. Crown Castle outperformed following the completion of its strategic review and a better-than-expected outlook after the fibre business sale. Additionally, improving carrier investment and a shift toward defensive assets like towers amid macro uncertainty also supported the share price move.

U.S. rail operator Union Pacific (-0.16%) and U.S. electric utility Constellation Energy (‑0.45%) were the largest detractors.

Union Pacific is the largest listed railroad company in North America. Union Pacific’s share price was impacted by heightened tariff fears.

Constellation is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S., serving states including New York, Illinois, Maryland, Pennsylvania and New Jersey. The company’s combined generation capacity is more than 32 GW and 90% of annual output is carbon free. Constellation’s share price was closely correlated with the broader AI complex, which has been weak as the U.S. markets shift towards a risk-off environment.

During the month, we exited our position in Canadian energy infrastructure company Gibson Energy.

All returns are in local currency.

Positioning and Outlook

Our outlook is for slowing global growth in 2025 with some regional nuances. Trump’s policy agenda has so far been more disruptive than expected, and we anticipate uncertainty will weigh on U.S. growth. However, other regions such as Europe may see improving growth through a potentially constructive fiscal agenda across the region. We remain somewhat defensively positioned, toward utilities, which we see as undervalued at present, as peak bond yields have resulted in multiples coming down in that space, although the utilities themselves have very fundamentally strong growth profiles, particularly in the U.S., driven by AI data centre power demand, industry decarbonisation and resiliency spending. European utilities are getting more capex approved by regulators and are seeing returns tick up as well, providing robust long-term visibility in earnings growth. Hence, we would expect earnings across infrastructure and utilities to remain robust despite the higher levels of uncertainty throughout 2025, and infrastructure’s defensiveness offering further upside.