During the third quarter, the listed infrastructure sector experienced positive returns, yet it trailed behind global equities, which benefited from a risk-on market sentiment. This period was characterized by robust performance across various infrastructure segments. U.S. utilities and North American natural gas and pipeline companies emerged as frontrunners, buoyed by the escalating demand for power to support AI-driven data centers. Complementary factors, such as resilient European markets for renewable energy and high utilization rates for Canadian pipeline assets, further propelled growth in these areas. Conversely, European utilities faced headwinds, with U.K. water companies being particularly affected by rising interest rates, and French toll roads experiencing idiosyncratic weaknesses due to political uncertainties. The communication towers sector recorded the lowest performance, as it navigated a deceleration in carrier capital expenditure within the ongoing 5G rollout, with investors eagerly anticipating positive catalysts in the final quarter.
Regionally, the U.S. and Canada were the primary drivers of growth, showcasing the strength of companies like Entergy, a regulated U.S. electric utility, and TC Energy, a major North American natural gas company. Entergy's stock surged on the back of new data center contracts, while TC Energy capitalized on favorable conditions for project origination and stable, long-term contracts. On the other hand, U.K. water utility Severn Trent and French toll road operator Vinci experienced declines. Severn Trent's share price was impacted by concerns over U.K. fiscal policy, and Vinci suffered from political instability in France, despite its toll road operations continuing to meet expectations. The quarter also saw strategic portfolio adjustments, including the initiation of a position in Spanish electric utility Iberdrola, known for its high-quality assets and favorable regulatory environment, and the divestment from Brazilian electric utility Eletrobras, U.K. water company United Utilities, and Canadian energy infrastructure company Pembina Pipeline.
Looking forward, the infrastructure sector is poised for substantial growth, driven by key themes such as decarbonization and the broader energy transition. Significant opportunities are identified in electric utilities across the U.S., EU, and U.K., where extensive development of renewable energy sources and grid infrastructure is underway to facilitate energy distribution. Investments in network resilience by U.S. and EU electric and water utilities are also increasing, aimed at mitigating climate change impacts and supporting increased load growth spurred by reshoring initiatives. Furthermore, the burgeoning demand from AI-focused data centers necessitates considerable expansion of energy infrastructure, especially for U.S. electric and gas utilities. With these powerful tailwinds, the outlook for infrastructure portfolios remains positive. The strategic balance between these growth-oriented sectors and GDP-sensitive areas like airports, toll roads, and railways, which benefit from a robust global economy, positions the sector for sustained success.
The evolving landscape of global infrastructure investments reflects a dynamic interplay of technological advancements, environmental imperatives, and economic shifts. By embracing innovation, fostering sustainable practices, and adapting to geopolitical changes, the sector can continue to build a future that is not only economically prosperous but also environmentally responsible and socially equitable. This forward-thinking approach ensures that infrastructure development serves as a cornerstone for global progress and resilience.