Property & Infrastructure Fund: 2015 in review
04 December, 2015
Those who attended our recent Roadshow will remember us waxing lyrical about the investment merits of Meridian Energy. Pleasingly, Meridian Energy has been one of our better performers in the Property & Infrastructure Fund for a second year running (+17% year to date).
After a stellar 92% rally in 2014, many thought that Meridian Energy had had its day and that better value and yield opportunities existed elsewhere. Our investment thesis, however, was based on the strength of the company's strategy (100% renewable), its positive earnings momentum (particularly relative to peers), and its strong management team. It is satisfying that these very attributes contributed to its strong share price performance over the year.
On the flipside, it is disappointing to report that one of our preferred investments, Union Pacific, was our worst performing stock during the year, falling 28% year to date. Following last year's strong volume growth and in anticipation of greater volumes in 2015 and beyond, Union Pacific (and the industry in general) ramped up staffing and capital expenditure; however, industry volumes have deteriorated, due largely to weak coal and industrial volumes, which in turn has had a short-term earnings impact. Despite the disappointing performance of US railroads over the year, we remain positive on their long-term prospects: these are wide moat duopoly businesses with inherent pricing power, and sustainable economic, environmental and societal advantages versus trucking.