Varun Anand's Top Picks: Atlantica Sustainable Infrastructure, Fortis, Fiserv
The focus of the markets remains on COVID-19, as concerns are mounting regarding the current spike in cases globally, the shape of the economic recovery and the risk of a second wave. In addition, we have a very contentious U.S. presidential election set for November and escalating U.S.-China tensions. As a result, we believe the volatility experienced in the first half of 2020 will continue into the second half. In this uncertain environment, stock selection is going to be a key driver of outperformance. Investors should invest in equities that can weather a prolonged economic downturn, with a focus on resilient business models that generate strong free cash flow and have manageable leverage. This is precisely where infrastructure equities shine. While many companies have suspended or reduced dividends, the Starlight Global Infrastructure Fund has had fifteen dividend increases at an average of 6.7 per cent thus far in 2020.
We have increased our allocation to infrastructure technology and renewable energy, as both of these sectors are seeing limited impact from the coronavirus or, in some cases, a modest benefit. Within infrastructure technology, data centers and cellular towers are positioned extremely well to weather the economic slowdown, as remote working, digitization and increased data consumption continue to benefit these companies. We have increased our exposure to renewable energy, particularly solar and wind, as both technologies are experiencing efficiency improvements while costs fall, making them more affordable than fossil fuel generation in many areas globally.
The coronavirus and economic slowdown have not impacted all infrastructure equities equally. We reduced our exposure to airports and energy in the first quarter of 2020 and remain underweight, as these two infrastructure sub-sectors continue to face demand headwinds while their customers (airlines, oil producers) remain in a precarious financial position.Sign up for BNN Bloomberg's new weekly newsletter, Home Economics, which aims to help Canadians navigate their personal finances in the age of social distancing and beyond. Have it delivered to your inbox every Friday by subscribing at https://www.bnnbloomberg.ca/subscribe