Investment Outlook: Infra & Property 2025

• The recent market decline has been driven by three key factors: Trade war, the shift from US technology stocks to other sectors, and the US economic slowdown. This correction presents an opportunity to seek new investment options.

• Krungsri Asset Management (KSAM) is offering two funds: Krungsri Next Generation Infrastructure Fund (KFINFRA) and Krungsri Global Property Fund (KFGPROP) to capitalize on the potential for higher returns as interest rates decline and sector rotation takes hold. The market, which has been laggard for quite some time, is likely to see an upward adjustment with lower risk due to limited price increases.
• Both funds share the following key strengths: 1) They are laggards, representing the most underperforming industries over the past five years, making them attractive investments. 2) They benefit a lot from declining interest rates. 3) They weathered the trade war under President Trump’s first term.
• KFINFRA’s master fund is UBS (Lux) Infrastructure Equity Fund, Morningstar 5-Star rated fund under UBS Asset Management, while KFGPROP’s master fund is Janus Henderson - Global Real Estate Fund under Janus Henderson Investors. Both global funds have consistently outperformed the market for several years. They have extensive experience and expertise in their respective sectors.

• Over the past 10 years, as bond yields have significantly declined, REITs have generated an average 12% return, outperforming the market, while the infrastructures have delivered around 9% p.a. return. Both sectors are among the biggest beneficiaries of interest rate cuts. Despite concerns about tariffs when Trump first became president, these sectors successfully navigated the market turbulence.

• The performance over the past five years shows that KFGPROP achieved an average return of 1.9%, outperforming the main fund index. Meanwhile, KFINFRA achieved an average return of 5.7%, surpassing the Infra index. Therefore, it is recommended to allocate approximately 5 - 10% of the portfolio to these two funds.

• Three core reasons why Infrastructure stands out as an attractive investment theme for the current economic climate:
  • Ageing Infrastructure: Existing infrastructure requires upgrades to improve efficiency, meet safety standards, and support economic expansion.
  • Decarbonization: The growing importance of reducing carbon emissions will drive investments in renewable energy along the power demand chain.
  • Digitalization: The increasing creation and use of data are driving the demand for expanded data centers, fiber networks, and telecommunications infrastructure
• An influx of capital is expected in this sector due to the need to upgrade existing infrastructure. The address of climate change will fuel innovation and drive investments in carbon-reducing solutions. The shift towards a digital world necessitates infrastructure for new technologies such as AI acceleration, data warehouse cloud computing, and IoT (Internet of Things). This will lead to significant growth in demand for data centers, fiber optics, and telecommunications infrastructure.
• Infrastructure is a quasi-monopoly business in many sectors, with high entry barriers due to the need for long-term contracts. This translates into consistent cash flow and steady dividend payments, making it a relatively lower-risk investment within equities.
• This investment strategy focuses on three key themes: Climate Change (60%), Mobility (25%), and Smart Cities (15%). The fund diversifies investment across 250+ global companies, with a strong emphasis on the US market (70%). It further prioritizes 40-60 standout companies with solid financial fundamentals.

• The focus on Climate Change within the investment strategy emphasizes clean energy infrastructure. Natural gas is expected to play a prominent role as a more efficient energy source compared to alternatives. The US possesses vast natural gas reserves, leading to anticipated significant growth in this sector. Projections indicate a 2.8% annual increase in natural gas demand in the US between 2024 and 2030. This growth is driven by factors such as economic and population expansion, the transition from coal to natural gas, and the need for a stable energy source in various industries.

• The fund allocates around 30% to midstream businesses such as Targa Resources, a leading North American and global natural gas pipeline provider with strong growth and profit.
• Other leading companies in which the fund invests under the Climate Change theme include Veolia, a waste and water management company. Under the Mobility theme, investments include Zurich Airport, while the Smart Cities theme features Digital Realty, a top U.S. data center company.

• Strengths of the fund include outstanding performance, consistently outperforming the market with an average annual return of 8.3%. This success is achieved through active management, a team of specialized analysts with extensive experience, and a systematic investment process. Companies are carefully selected based on factors such as economic cycles, industry attractiveness, and company fundamentals, and various risk factors. The fund also diversifies across a wide range of asset classes.

• Trump's return as president would be a game changer and the recent tariff policies have significantly heightened geopolitical tensions and market volatility. This would benefit the real estate sector given the defensive qualities which has proven to be more resilient than other industries during recent market corrections.
• Investing in listed real estate companies offers three potential returns: dividends, diversification across all property types, and sustainable and secure growth amid market volatility.
• The fund focuses on investing in high-quality global real estate businesses and REITs, which provide greater ownership rights, can directly manage assets while benefiting from lower financing costs and easier access to capital than other owners of real estate.
• The investment concept and strategy focus on assets with high growth potential, competitive advantages, and alignment with evolving consumer trends. These trends include the shift towards a digital age, convenient lifestyle, demographic changes, and sustainability. Investment themes with growth potential include logistics, real estate technology, and healthcare at attractive valuations.

• Within the real estate sector, non-core commercial real estate, including sectors like Data Center and Healthcare, is a standout area for growth. These non-core sectors have significantly expanded over the past two decades and represent 61% of the overall market in 2024.
• The fund has recently increased its allocation to retail and office real estate. This shift reflects a post-pandemic market trend, with consumers returning to physical stores and workers returning to office. The fund’s underweight towards data centers has been premised largely on elevated valuations; however, the recent market correction has provided an opportunity for the fund to increase their exposure.
• The fund's investment strategy differentiates itself through its 25 years of global experience and a dedicated team of eight industry specialists. This team conducts in-depth analysis of individual assets, employing a bottom-up stock selection approach. The fund's strategy focuses on selecting resilient assets that can withstand any market conditions, ensuring a swift recovery in case of unforeseen events. The fund's strategy is not swayed by potential economic downturns.
• The fund currently allocates 70% of its portfolio to the US market, with the remaining portion distributed across Europe and Asia.

• The fund's key strengths include consistent returns, with an estimated annual dividend of 4% and a growth rate of 5-6%. The overall return is expected at 10% for this year.

• KFINFRA: Minimum 80% of NAV in average of fund accounting year are invested in the master fund, UBS (Lux) Infrastructure Equity Fund | Risk level 6: High risk.
• For KFGPROP
  • Minimum 80% of NAV in average of fund accounting year are invested in the master fundม Janus Henderson - Global Real Estate Fund | Risk level 7: High risk.
  • Hedging is at the fund manager's discretion, posing exchange rate risks that may result in investor losses, gains, or returns lower than the initial investment.
  • Follow a sector-specific investment policy, which may result in higher risk and price volatility compared to diversified funds. Investors may face a significant loss of capital. Investors should seek additional advice before investing.
• Should understand fund features, conditions of returns, and risk before making an investment decision. Past performance does not guarantee the future result.