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February 2025
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AAM Magazine
February 2025
Back to 2022 Best of the Best Awards Supplement

Investing in infrastructure

By Nicky Burridge   

DWS Investments believes its focus on pure-play infrastructure companies enables it to replicate the investment characteristics of private infrastructure assets, to benefit from stable and resilient returns.

By investing in companies that own hard assets, it seeks to mitigate exposure to enterprises whose assets are highly sensitive to commodity and energy prices, as well as business and economic cycles. “This strategy aims to deliver superior risk-adjusted returns versus peers and broader equities,” Heidi Sum, head of product, APAC, at DWS, explains.

The company, which won the Global Listed Infrastructure (3 Years), and Global Listed Infrastructure (10 Years) Awards in Asia Asset Management’s (AAM) Best of the Best Awards 2022, is a pioneer in the listed infrastructure space, offering products in this area since 2008. 

Today, it is one of the largest listed infrastructure managers in the world, managing US$12.7 billion as of December 31, 2021, 70% of which is institutional assets.

Since it first entered the infrastructure space, DWS’s investment process has evolved to adapt to the diversity of infrastructure assets and changing market conditions. 

Sum explains: “We understand that to consistently deliver alpha through the market cycle, it is important to balance the golden triangle of valuation, timing and risk. Our highly developed process has helped us to avoid value and liquidity traps, and manage market volatility, while anticipating market inflection points, and ultimately deliver consistency in our alpha.”

DWS has developed a number of proprietary tools that form an integral part of its strategy. These include its Quadrant Allocation Framework, an internally built allocation model based on economic growth and inflation to determine quarterly allocations between infrastructure sub-sectors. 

It has also created a Credit Market Analysis tool, which focuses on understanding each company’s true borrowing costs, and a Rate of Change Methodology, which identifies inflection points across the global business, economic and credit cycles to inform its stock selection and portfolio construction. 

Looking ahead, DWS is confident that utilities offer significant investment opportunities, as spending on renewable energy sources and projects, such as electric vehicle charging stations, is increased. “Across the globe, we expect selected utilities to benefit from favourable policy that supports enhancing transmission and electric distribution grids,” Sum says.

Meanwhile, the transport sector is expected to benefit from growth as the world transitions to living with Covid-19, while in the communications sector, demand for towers as wireless carriers build out their 5G networks, is expected to continue. 

DWS also expects valuations and fundamentals to continue to offer tactical opportunities in energy. “We believe there could be a longer-term secular growth opportunity for US energy infrastructure, as events in Russia and Ukraine potentially shift the world’s future energy mix,” Sum says.

Local expertise

DWS’s unique real estate investment strategy, combined with its strong focus on local expertise, also saw it win the Global REITs (10 Years) Award.

Sum explains that DWS’s investment strategy involves it segmenting the global real estate securities investment universe into discrete buckets, in which stocks with common fundamental drivers are grouped and rigorously assessed against each another. 

“Portfolio outperformance stems primarily from our emphasis on stock selection within each bucket, such as identifying high probability outcomes through arbitrage or value discrepancies among stocks within buckets, while also allowing for alpha generation opportunities from a top-down perspective,” she says.

DWS places a high emphasis on having local market knowledge to enable it to reflect dynamic market conditions in its decisions. It believes that having a strong local presence enables it to detect changes in the macro factors that determine the relative risk-return profile of individual real estate securities on a global scale. 

ESG considerations form an important part of both real estate and infrastructure investments. The company’s investment professionals receive specialist ESG training to deepen their knowledge of critical factors in this area, while DWS is also constantly seeking ways to enhance its ESG underwriting and the data that supports it. 

In addition, it prides itself on active engagement, and seeks to engage directly with board and management teams where its process identifies an ESG issue. 

Sum says: “In our view, integrating ESG factors into the investment process enables us to identify the risks and opportunities that a traditional financial analysis would miss, or fail to address systematically. We consequently see ESG integration as a valuable complement to traditional fundamental analysis, which adds value to the quality of our investment decision and offers opportunities for higher risk-adjusted returns.”

DWS were also awarded AAM Best of the Best 2022 Performance awards for Global Multi-Asset (5 Years) and US Credit, Investment Grade (5 Years), on top of a region award – CIO of the Year in Asia – won by Sean Taylor, CIO APAC and global head of emerging market equities.