Utilities companies in the U.S. have weakened since the 2012 election, says Nick Langley, investment director and senior portfolio manager of RARE Infrastructure in Sydney, Australia.
His firm manages the Renaissance Global Infrastructure Fund, and co-manages the Renaissance Optimal Global Equity Portfolio, Optimal Income Portfolio and Optimal Inflation Opportunities Portfolio.
The decreased performance is related to two issues. They are:
- The possibility of a higher tax rate on dividends in the U.S., since there are proposals to raise them. Utility companies are high dividend payers, so investors are worried about how returns will be affected.
- Growth has also been stagnant in the sector. "At the beginning of the year, we expected growth to tail off in the U.S. through the course of 2012," says Langley. This has occurred, with expansion falling from its high of 2% at the start of the year.
Things are more lucrative on the infrastructure side, however. He says the stocks of companies involved in moving goods and people—like airports, rail companies and toll roads—are all linked to GDP and growth.
Read: Know your infrastructure
"As business activity picks up, these companies do better and their revenues pick up," says Langley. "The time to think about buying these companies is when the market is most bearish about economic growth—and that's right now."
The housing market is also linked to the performance of infrastructure companies. As construction and housing starts pick up, he says construction companies will need more raw materials.
"Those raw materials are sourced from all over," he adds. "A lot of wood comes from Canada and that needs to find its way to the U.S. And the most efficient way to move the materials is by rail, so we see a significant pick-up in the construction component of rail revenues."
Since people need electricity, gas and water once houses are completed, housing surges also positively impact utilities companies.
Langley predicts the U.S. housing market will continue to pick up through 2013, so he says investors should seriously consider the value of infrastructure companies. Though they'll be low growth in the country, the following years will be more promising.
He says the "housing market will really hit its stride, and the economy will recover quite strongly, with more than 3% GDP" through 2014 and 2015.