Ecofin Global Utilities and Infrastructure Trust – Feeling energised
- 26 June 2025
- QuotedData
- David Batchelor
Feeling energised
The strong recent performance of Ecofin Global Utilities and Infrastructure Trust (EGL) has continued into 2025. Despite market volatility, manager Jean-Hugues de Lamaze delivered 7.1% NAV total return growth for the six months to 31 May. This was well ahead of the two most relevant utilities and infrastructure indices, as well as UK equities, and only a little behind global equities as measured by the MSCI World Index. At 12.3%, share price total return performance was even better, as EGL’s discount narrowed – a very welcome development for shareholders.
This strong recent performance has been generated through a tactical focus on networks, environmental services and transportation infrastructure as a diversifier. These themes are visible throughout the portfolio, the latter notably in the recent purchase of two airport operators. We believe that EGL offers investors exposure to an attractive portfolio of assets, underwritten by powerful underlying drivers, particularly the growth in demand for energy.
Developed markets utilities and other economic infrastructure exposure
EGL seeks to provide a high, secure dividend yield and to realise long‐term growth, while taking care to preserve shareholders’ capital. It invests principally in the equity of utility and infrastructure companies in Europe, North America, and other developed OECD countries.
| Year ended | Share price total return (%) | NAV total return (%) | MSCI World Utilities total return (%) | S&P Global Infra total return (%) | MSCI World total return (%) |
|---|---|---|---|---|---|
| 31/05/21 | 19.7 | 15.8 | 1.0 | 6.8 | 22.9 |
| 31/05/22 | 28.0 | 26.8 | 22.5 | 26.4 | 8.4 |
| 31/05/23 | (5.2) | (5.1) | (6.9) | (5.4) | 5.2 |
| 31/05/24 | (6.9) | 7.7 | 9.8 | 8.4 | 20.5 |
| 31/05/25 | 21.0 | 12.9 | 11.0 | 13.8 | 7.8 |
Source: Morningstar, Marten & Co
Market backdrop
2024 – the year of data centres and nuclear power
2024 was a very strong year, largely driven by data centre demand due to the AI revolution.
2024 was a positive year for the utilities and infrastructure sectors, largely driven by the US. A strong theme was surging demand for data centres, due to the ongoing take-off of AI, which is highly energy-intensive. The beginning of this theme was arguably the purchase by Amazon Web Services (AWS) of Talen Energy’s Cumulus Data Centre campus in Pennsylvania for $650m. This deal was followed by other mega-deals and a significant re-rating of companies such as Vistra (in EGL’s top 10 – see page 8) and Constellation Energy that stood to benefit from the trend.
The Talen deal was also emblematic in that the data centre’s energy source was the Susquehanna Nuclear Power Plant; use of nuclear energy helps companies like AWS meets their sustainability goals. Nuclear is the only energy source that is both carbon-free and base load – that is, providing a minimum level of continuous supply to ensure the grid can meet constant needs, regardless of variations in overall usage (one of the drawbacks of renewables is that they are, in contrast, intermittent).
We have therefore seen nuclear energy make a dramatic comeback in the US, from being perceived as a technology of the past to being front-and-centre of efforts to meet rising power demand in a sustainable manner. President Biden’s signature Inflation Reduction Act (IRA) significantly boosted the sector through a combination of financial incentives, market stabilisation measures and support for new technologies, helping both existing nuclear power plants and the development of next-generation reactors. In the UK, we have seen the recent government announcement of £14.2bn of public money to build the new Sizewell C nuclear plant.
Q1 2025 – mean reversion in US, growth in Europe
The first quarter of 2025 saw something of a mean reversion, with retracements in the share prices of those names that had benefitted from the dominant themes of 2024. A key catalyst was the arrival of DeepSeek, a Chinese competitor to US large language models (LLMs) that surprised the market by seemingly matching the performance of the likes of ChatGPT, while using a much lower level of energy. This called into some doubt the assumed future demand for AI data centres, with the need to power them, and the likes of Vistra saw subsequent share price falls of around 25%.
Despite these struggles in the US, European utilities and infrastructure companies at last saw some positive share price performance. Previously, in many cases even multi-year double-digit EPS returns did little to boost shareholder returns. However, for example, E.ON and RWE (both top 10 holdings for EGL) returned 20% and 16% respectively over the quarter. This was helpful for EGL, which, as discussed on page 6, has been increasing European exposure for several months, such that it is now the portfolio’s largest geographic allocation.
Figure 1: STOXX Europe 600 Utilities Index vs S&P 500 Utilities Index, rebased
Source: Bloomberg, Marten & Co
Q2 2025 – turmoil, then recovery
Thus far in Q2 the positive trend in Europe has continued. However, this time positivity has simultaneously been seen in the US. Vistra, for example, has clawed back all its earlier losses to stand at a higher level than it began the year.
Jean-Hugues puts this turnaround down to the general positive sentiment in the market. Equities (along with currencies and bonds) experienced significant turmoil in the aftermath of President Trump’s “Liberation Day” reciprocal tariff announcements on 2 April. However, his subsequent 90-day pause, followed by the US Court of International Trade’s ruling that many of his announced levies were illegal, has seen equities rebound almost as quickly as they fell, with the S&P 500 now well above its Liberation Day level; a rising tide has lifted all boats.
A structural increase in energy demand
Energy demand in the OECD has been flat for a quarter of a century, but that is changing.
The past 25 years has been characterised by flat energy consumption in the OECD, the organisation of developed world countries, and indeed falling demand in the UK and Europe. However, there is now a clear upward trend across the Western world, and particularly in the US. There are three principal drivers:
- continued adoption of electric vehicles;
- data centres linked to the AI revolution; and
- general electrification of economies as part of the energy transition away from fossil fuels to sustainable sources.
EGL’s manager comments that the underlying growth in demand has been masked by gains from increasing energy efficiency. However, with many of the easier opportunities now exploited, the scope for further efficiency gains is much more limited. At the same time, it is relatively difficult to add new generation capacity, so the transmission and transportation of power is now the vital factor, and new capacity needs to be interconnected. This is very positive for EGL’s portfolio, where transmission and transportation are key themes.
Against this backdrop, companies are benefitting from more predictable contracts. Conventional power generation, typically highly dependent on commodity price fluctuations, has previously accounted for as much as 50% of operating profits, but now a level of 10% is more typical. Those companies that are able to adapt their business model for the energy transition are therefore being rewarded with much more predictable cashflows.
Other recent geopolitical and macroeconomic developments have also been positive for EGL’s universe of companies, albeit in a less direct way. The general increase in defence budgets across the West, driven by Russian aggression and pressure from the Trump administration, will lead to more demand for electricity, and also relevant technological gains. The recent commitment from Friedrich Merz, the new German Chancellor, of €600bn of new infrastructure spending should also have positive spillover effects, particularly for the likes of Vinci (a current Top 10 holding).
Spanish blackout highlights need for investment
The Spanish blackout should act as a wake-up call to governments about the critical importance of energy infrastructure.
On 28 April, Spain and Portugal (along with parts of southern France) were hit with an unprecedented blackout. Spain’s electrical grid experienced the loss of 15 gigawatt (GW) of power, or 60% of its total supply, with immense disruption to transport, telecommunications, healthcare and other sectors. Although the exact cause is still unclear, the blackout highlighted the extreme vulnerability of Spanish connectivity, with only one direct link to France, effectively making it an energy island.
EGL’s manager thinks that the incident should serve to focus the attention of governments and regulators, and act as a wake-up call for the need to incentivise investment in energy network infrastructure, and not just in Spain. The risk of further blackouts is significant. In Germany, wind power is the largest source of electricity production, at 31% of the total. Production is centred in the north of the country, but the south dominates economic activity, so maintaining transmission infrastructure is critical. In the UK, the National Grid warns of the risk of blackouts in winter, and there is also a similar risk in some parts of the US. Jean-Hugues believes that this increased attention should be positive for many of the companies in which EGL invests.
The valuation gap: listed vs private infrastructure
In the past year, the five big infrastructure-focused private equity managers (KKR, Brookfield, Macquarie, Blackstone and BlackRock) have raised more than $100bn of fresh capital, which they will seek to deploy. Jean-Hugues views this as part of a broader trend that has seen private equity paying some of its highest-ever premiums for infrastructure assets. In February, Innergex, a Canadian-headquartered hydro, wind and solar company, was acquired by CDPQ for $10bn at a 58% premium to its previous close. Jean-Hugues says that a deal premium of around 50% is currently typical, against an historic norm around 20-25%.
This all bodes well for investors in listed infrastructure such as EGL, both in terms of the potential for bids for some of its investments, and for the general upward pressure such transactions should have on the prices of listed companies in the sector.
Portfolio – Asset allocation
EGL has continued to increase its exposure to Europe at the expense of the US.
There has been a continuation of the shift in EGL’s geographic allocation highlighted in our last note in December. As shown in Figures 2 and 3, the exposure to continental Europe has continued to increase at the expense of North America. Historically, Jean-Hugues’s starting point has been to have a broadly equal split between these two largest geographies within the portfolio, to ensure exposure to all the important themes, and to avoid concentration risk. However, along with market moves in the early months of 2025, when many of the portfolio’s European holdings rallied, the shift also reflects his relative convictions about the two markets.
The US faces major headwinds from the second presidency of Donald Trump, specifically his likely changes to the IRA, which has provided funding for grid modernisation and electrification alongside other incentives. At the same time, Europe had depressed valuations, with numerous companies reporting strong results but not seeing their share prices respond accordingly.
Figure 2: Geographic allocation as at 31 May 2025
Figure 3: Geographic allocation as at 30 November 2024
Source: Ecofin Global Utilities and Infrastructure Trust
Source: Ecofin Global Utilities and Infrastructure Trust
The changes to sector allocation, shown in Figures 4 and 5, have been relatively modest since December. The small decrease in renewables and nuclear was due to the sale of NextEra Energy, and the reduction in regulated utilities was due to the sale of Edison International (see below). The new airport purchases saw the transportation allocation increase. These portfolio changes are explored in more detail on pages 8-10.
Figure 4: Sectoral allocation as at 31 May 2025
Figure 5: Sectoral allocation as at 30 November 2024
Source: Ecofin Global Utilities and Infrastructure Trust
Source: Ecofin Global Utilities and Infrastructure Trust
Gearing
EGL’s investment policy allows gearing of up to 25% and Jean-Hugues uses this flexibly. The level at any one time reflects his current level of conviction. It rose to around 15% at the end of 2024 as opportunities were identified for new purchases and adding to a number of key holdings, both on the grounds of valuation and fundamentals. As of 31 May 2025, net gearing was 15.4%. This provides ample margin to the 25% maximum should a future market event throw up particular opportunities.
EGL has calculated that an impressive average of 170bps of alpha are generated each year for shareholders through gearing; this has remained the case even with the rise in the cost of debt.
Top 10 holdings
Since our last note in December, National Grid has been replaced as the largest holding in the portfolio by E.ON (previously third-largest). RWE is newly in the top 10, replacing NextEra Energy, which was sold. Readers interested in other names in the top 10 should see our previous notes (see page 18 for a list of these).
Figure 6: Top 10 holdings as at 31 May 2025
| Holding | Sector | Country | Allocation 31 May 2025 (%) | Allocation 30 November 2024 (%) | Percentage point change |
|---|---|---|---|---|---|
| E.ON | Integrated utilities | Germany | 5.3 | 4.3 | 1.0 |
| National Grid | Networks/Regulated | UK | 4.8 | 4.7 | 0.1 |
| Vinci | Transportation infrastructure | France | 4.6 | 3.8 | 0.8 |
| Enel | Integrated utilities | Italy | 4.3 | 3.7 | 0.6 |
| Vistra | Integrated utilities | US | 4.2 | 4.6 | (0.4) |
| ENAV | Transportation | Italy | 3.8 | 3.5 | 0.3 |
| Veolia Environnement | Environmental services | France | 3.6 | 3.9 | (0.3) |
| RWE | Integrated utilities | Germany | 3.6 | 3.5 | 0.1 |
| SSE | Integrated utilities | UK | 3.5 | 3.7 | (0.2) |
| Constellation Energy | Nuclear | US | 3.4 | 3.5 | (0.1) |
| Total of top 10 | 41.1 | 39.9 | 1.2 |
Source: Ecofin Global Utilities and Infrastructure Trust, Marten & Co
RWE
Figure 7: RWE (EUR)
Source: Bloomberg
RWE is a Germany-based energy generation and trading company with global operations. Historically a coal-heavy utility, it has transformed itself into a clean energy leader. It has a particular focus on onshore and offshore wind, with an installed capacity of 3.3GW at the end of 2024. An additional 4.4GW is under construction, including projects in the UK (Sofia), Denmark (Thor) and the Netherlands (OranjeWind). The company’s flexible generation division is responsible for around a third of EBITDA, through gas, hydro and biomass plants. These are assets that can specifically ramp electricity production up or down quickly in response to changes in demand and supply.
RWE does still have exposure to coal (“phase-out technologies”) but aims to exit the sector entirely by 2030. This is being done in conjunction with the German state; in 2023 the government received an exemption from the EU’s state aid rules to pay RWE €2.6bn for the closure of lignite-powered energy plants in the Rhine region. The company’s nuclear exposure was phased out in 2023, as it was across Germany as a whole.
Jean-Hugues sees RWE as a particularly attractive way to play the looming tightness in the German power generation market, caused by grid infrastructure challenges, delays in transitional energy projects and reduced dispatchable power capacity (caused in part by the country’s move away from coal and nuclear). Its most recent corporate results reaffirmed its full-year outlook, despite some short-term softness in earnings on weak wind conditions.
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