Kevin McSweeney is lead for Canadian Equities and Head of Global Infrastructure CI Global Asset Management.Joe Bulawan/The Globe and Mail
Kevin McSweeney first got a taste for investing in Grade 8, when he used savings from a paper route in Halifax to buy 100 shares in a junior miner at 20 cents each. Though it was fun to make 10 cents a share in profit, he waited until adulthood—and a better job—before wading back into the market. After earning an MBA from Dalhousie, he did stints with Finance Canada as an economist and at Scotiabank in corporate credit management. He joined CI’s high-yield bond team in 2008 before moving to the equity side. Today, he oversees about $1.2 billion in several infrastructure funds. They include the CI Global Infrastructure Fund, which has outpaced the S&P Global Infrastructure Total Return Index since he took over in 2017. We asked McSweeney how his holdings may benefit from Canada’s nation-building infrastructure projects and why he likes TransAlta.
What’s your strategy to try to outperform?
James Grant, financial historian and founder of Grant’s Interest Rate Observer, has a famous quote: “The secret to investing success is having everybody agree with you—later.” My best investments have been contrarian. I like to buy quality companies priced for risk that I think is unlikely to occur, or when all those risks are priced in and I can safely buy it. “Putt for dough” is a golf term for where you make your money. We use the PUTT acronym for investing in pipelines, utilities, telecom infrastructure and transportation.
Where’s the best value in infrastructure now?
I think it’s in industrials on the transportation side. Their stocks have been held back on worries about wars and tariffs, but I think that’s temporary. The economy, particularly in the U.S., is still doing well. We expect a lot of infrastructure spending, which helps companies like French-based Vinci SA that have an engineering or construction arm, as well as railways and toll-road operators. Airports, which charge landing fees to airlines, will also benefit from increased travel by aging and affluent passengers. We own names, such as CSX Corp., a U.S. railway, Auckland International Airport and Ferrovial SE, a Spanish developer of airports and toll roads, which includes Ontario’s Highway 407.
Kevin McSweeney.Joe Bulawan/The Globe and Mail
Mark Carney ushered in the Building Canada Act to fast-track nation-building infrastructure projects. What names do you hold that might benefit?
The act accelerates federal approval for ports, railways, energy corridors, critical mining developments and clean energy. We own Enbridge Inc., which got the nod from Ottawa in April for a $4-billion expansion of its Sunrise natural gas pipeline system in British Columbia. Keyera Corp., another holding, would benefit from faster pipeline approvals, too. We own Canadian National Railway and Canadian Pacific Kansas City, which would gain from goods shipped for infrastructure projects. Still, we don’t have enough clarity for Canadian companies to invest and feel confident that they will get sufficient returns for risking capital. Our stocks, however, have other catalysts and don’t depend on fast-tracking projects. CP Rail, for instance, can drive earnings growth from its acquisition of Kansas City Southern, which connects Kansas City to Mexico.
Power producer TransAlta is a top holding. Why?
A sovereign artificial intelligence strategy needs the ability to ramp up power quickly to support data centres. Excluding the U.S., Canada is among the few G7 countries that can do so, and particularly in Alberta. It’s where TransAlta is developing these data hubs and has access to natural gas. It also benefits from a business-friendly backdrop, low taxes and government support for permits. Its stock trades at a discount to its utility peers, partly due to Alberta’s power price, which can be volatile because it’s lightly regulated. Longer term, however, we see strong drivers of power demand—be it from population growth, data centres or oil sands expansion.
What’s the biggest risk in your sector?
A big spike in inflation or interest rates would hurt valuations in infrastructure stocks, but I think that would be shorter term. Our fund has delivered positive returns in nine of the past 10 years, including in 2022 when facing those challenges.