BNY Mellon manager bets on utilities and energy pipelines
BNY Mellon Global Infrastructure Income exchange-traded fund manager Brock Campbell says the artificial-intelligence theme has been exciting, but it's far from over.
Fund manager Brock Campbell jokes that his children would "give up both electricity and water to have access to Roblox."
Kidding aside, the manager of the BNY Mellon Global Infrastructure Income ETF BKGI said he sees telecommunications and data as vital basic needs. "These are things you're not just going to cut off when the economy weakens, and that's a fantastic opportunity to introduce ballast into a portfolio," Campbell told MarketWatch in a recent interview.
His five-star Morningstar-rated fund has returned 21% on a three-year annualized basis, beating a 16% gain for its benchmark S&P Global Infrastructure Index. Assets under management for the four-year-old ETF totaled $1.9 billion as of Sept. 21, more than tripling from $640 million when MarketWatch spoke to Campbell in February.
"Infrastructure offers diversification, downside protection, and inflation protection that are particularly appealing in today's environment of elevated geopolitical uncertainty," he said.
Investors have also likely been drawn to artificial intelligence, which has proved a catalyst for the sector that suffered a decadeslong trough amid stagnation in U.S. electricity consumption. Campbell described a "lightbulb" moment for his team in late 2022, when ChatGPT debuted and they realized how power-hungry next-generation AI chips would be.
"We hadn't had a growth market in infrastructure in 30 to 40 years," he said. "That was a catalyst for us to start thinking about supply chains, and since then we've spent a lot of time thinking about pinch points in that supply chain."
He was drawn to power generators - historically very cyclical - that looked stable and defensive, yet exciting given the potential to "sign deals with data centers at high prices." The fund picked up Dominion Energy (D) in late 2022. Earlier this year, NextEra Energy $(NEE)$ announced a $67 billion merger with the power and energy group.
Campbell said they are increasingly focused on a U.S. shift toward using natural gas in data centers. "We fundamentally believe there is going to be a massive build-out of new natural gas-fired facilities, and in order for those facilities to run, you need the pipelines to connect to them."
Given how hard it is to build new ones, they look for companies with "world-class existing pipelines" that can build smaller connecting ones to service new gas plants. Major player Hess Midstream $(HESM)$ is the fund's top holding.
"In the U.S., we don't believe that excitement has come through, so we think that's an area where investors could benefit from the AI buildup," he said.
Pipelines are also a play on energy security, a theme that has strengthened amid the outbreak of the Iran war, he said. "Clearly infrastructure plays a critical role in both the electrification side, but also on the oil- and natural-gas pipeline side."
Campbell said they've been rotating out of U.S. utilities and into regional European players. While Europe's regulatory road for data centers will likely be tougher, "the first pinch point is going to be access to power," he said. Finnish utility provider Fortum (FI:FORTUM), a holding in the fund, recently signed a long-term electricity deal with Alphabet's Google (GOOGL) to expand the latter's European AI reach.
Among the fund's top holdings are Spain's Naturgy Energy (ES:NTGY), Bouygues (FR:EN) and Engie (FR:ENGI) of France.
"Our team has a thesis around data sovereignty, i.e., you need a localization of data center build-out for data security. We believe that Europe was going to have to eventually replicate, and we're at the very early innings of that replication," he said.
He dismissed fears by some investors that the AI cycle could be waning after a period of intense excitement. "We haven't even scratched the surface; infrastructure is a long, long tail. It takes a long time for regulatory approval for building and then obviously deploying."
Tools like agentic AI have a huge power demand, Campbell said. "The compute just feels insatiable to me, I don't see any end in sight."
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are flat, with oil (CL.1)(BRN00) slipping after fresh U.S. and Iran talks. The dollar DXY is climbing and gold (GC00) is dropping.
Key asset performance Last 5d 1m YTD 1y S&P 500 7764.64 2.36% 1.14% 13.43% 16.64% Nasdaq Composite 27,244.28 4.86% 4.18% 17.22% 20.69% 10-year Treasury 4.97 -5.30 31.70 79.80 81.80 Gold 4351.8 1.15% -6.37% 0.45% 15.48% Oil 90.01 -11.77% 9.89% 56.78% 38.88% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Flash manufacturing and services purchasing managers' indexes for September are due at 9:45 a.m. Eastern. Federal Reserve governor Michael Barr will discuss housing around 10 a.m. U.S. weekly crude inventories are due at 10:30 a.m.
The Treasury will announce the results of a $70 billion auction of 5-year notes at 1 p.m.
KB Home stock (KBH) is falling. The homebuilder posted an earnings beat, but cut its margin outlook.
Cracker Barrel shares $(CBRL)$ are jumping after forecast-beating earnings.
A Meta (META) Connect conference aimed at showcasing AI breakthroughs will kick off with a keynote address by CEO Mark Zuckerberg at 7 p.m. Eastern.
Huge El Niño projected to cause 450,000 deaths in next six months.
The chart
The chart on X from Michael Batnick, managing partner at Ritholtz Wealth Management, showed what he says is the enduring strength of shares in conglomerate Berkshire Hathaway. If that stock $(BRK.A)$ (BRK.B) dropped 99% today, it would still match S&P 500 SPX growth since 1965, Batnick said.
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Diego Rivera protege's paintings journey from dumpster to museum.
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