Defensive income with inflation-linked growth

With inflation still sticky and interest rates likely to stay higher for longer, investors are searching for income strategies that can go the distance. For Magellan’s Ben McVicar, infrastructure provides exactly that: reliable, inflation-linked cash flows in markets where consistency is hard to come by.

The focus is on quality infrastructure assets with stable, regulated cash flows and, crucially, the ability to grow in real terms. These characteristics, McVicar argues, make infrastructure one of the few asset classes capable of delivering both capital stability and real income growth in today's market.

The Magellan Infrastructure Fund targets a biannual distribution of around 4%, underpinned by high-quality assets across regulated utilities, toll roads, and airports. These businesses typically enjoy long-term contracts, inflation-linked pricing, and essential service demand, while operating in stable, developed economies.

“We want to be in jurisdictions with the rule of law, strong regulatory regimes, and reliable returns,” McVicar explains.

Many of the fund’s holdings are concentrated in Europe and the UK, where Magellan sees attractive valuations and supportive regulatory environments. Key names include Spain’s Aena (AENA), global transport operator Ferrovial (FER), and Italgas (IG), an Italian gas distributor with strong margins and prudent capital allocation.

While some infrastructure names faced pressure during the rate-hiking cycle, McVicar believes the tide is turning. With interest rates settling into a more sustainable range, Magellan sees real assets, particularly those with regulated pricing, entering a favourable cycle. The distortion of ultra-low rates is behind us, and high-quality infrastructure businesses are now better positioned to stand out.

In this Fund in Focus, McVicar outlines why a global portfolio of essential services may be one of the most compelling options for income investors today.

“Inflation protection and reliability”: Why Magellan backs infrastructure for income

Ben McVicar, Co-Portfolio Manager of the Magellan Global Infrastructure Fund, is quick to point out that infrastructure is about growth as well as stability.

“We’re building a portfolio of very defensive, reliable infrastructure companies,” he says. 

“But it’s equally important that those cash flows are inflation-protected and backed by growth.”

The fund targets a steady, inflation-linked income stream, underpinned by essential service assets. While the current yield sits around 4%, McVicar notes that capital growth over time is a key part of the return profile, particularly as infrastructure earnings are often linked to CPI.

The portfolio in three parts

The fund holds around 30 names, split broadly into three categories: regulated utilities, user-pays infrastructure (such as toll roads and airports), and specialist assets. Each has a slightly different role to play.

Utilities offer steady, regulated returns and are generally shielded from economic cycles. Toll roads provide long-duration contracts and often inflation-linked pricing. Airports offer exposure to long-term travel and urbanisation trends.

“We like assets with long duration and embedded pricing power,” McVicar says. 

“That gives us confidence in the income stream, even in more volatile markets.”

Europe: an opportunity in disguise

While much of the global equity market has seen strong gains over the past year, McVicar notes that many infrastructure assets remain misunderstood or undervalued by generalist investors. In particular, he points to mispricing created by short-term rate moves and overly broad macro sentiment – something active managers can use to their advantage.

“European infrastructure assets are trading at very attractive valuations,” he says. 

“The UK and continental Europe are areas where we’re finding quality companies at good prices.”

Current portfolio holdings include Aena, the world’s largest listed airport operator; Ferrovial, a global transport and toll road business; and Italgas, an Italian gas distributor with a strong return profile and solid regulatory environment.

Why higher rates may actually help

Rising interest rates have typically been seen as a headwind for infrastructure, but McVicar believes the picture is more nuanced.

“We’ve gone from an ultra-low-rate world to something more normal,” he says. 

“That actually benefits infrastructure, because it removes the distortions and allows high-quality businesses to be properly valued.”

Crucially, many of the assets in the portfolio have long-term debt locked in at low rates, and revenues that rise with inflation. That helps preserve real returns and supports consistent income distribution.

The role of infrastructure in a diversified portfolio

Magellan sees infrastructure as playing a distinct and complementary role alongside traditional equities and fixed income.

“You get the defensive characteristics – lower drawdowns and volatility – but you also get real earnings growth,” McVicar explains.

This combination of capital preservation and inflation-linked growth makes it particularly well suited to income-oriented investors who still want exposure to long-term themes.

The team also puts a strong emphasis on quality and governance. Assets must be located in jurisdictions with robust legal and regulatory systems. This typically means OECD countries with mature infrastructure frameworks.

What sets Magellan apart

When asked what differentiates Magellan’s approach, McVicar points to depth and discipline.

“We’ve got a long track record managing global infrastructure strategies,” he says. 

“And our investment universe is curated. We don’t just buy anything that looks like infrastructure.”

The result is a concentrated, high-conviction portfolio built to perform across market cycles. And McVicar believes the current environment could be particularly attractive for infrastructure investors.

“There’s value in the asset class. Inflation protection is embedded. And the need for long-duration assets isn’t going away.”

For income investors seeking real returns, global diversification, and capital stability, infrastructure might be the most dependable growth engine in the portfolio.

Invest in the world's best businesses

The Magellan Infrastructure Fund (Currency Hedged) Active ETF holds 20 to 40 stocks that seeks to deliver the stable returns offered by the asset class, while hedging returns from currency movements. Learn more by visiting the Magellan website or fund profile below. 

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Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) (MICH)

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