Infrastructure and Renewables: Steadfast Pillars in a Volatile Market — Macquarie's Q1 2025 Fund Performance

The first quarter of 2025 was a litmus test for global markets, with geopolitical tensions, tariff volatility, and shifting inflation dynamics creating uncertainty. Yet amid this turbulence, the Macquarie Global Listed Real Assets Fund (MGRAF) found stability—and opportunity—in two key sectors: infrastructure and renewable energy. These sectors, driven by structural demand from the digital revolution and the energy transition, proved resilient even as broader equity markets stumbled.

The Macroeconomic Backdrop: A Quarter of Turbulence

Q1 2025 was marked by “Liberation Day” tariffs, which introduced a 10% universal levy and sector-specific penalties on imports. These measures, coupled with U.S.-China trade frictions, dragged on corporate earnings and consumer sentiment. The S&P 500 fell, with consumer discretionary stocks plunging 14%, while energy (+9%) and utilities (+7%) outperformed. The Fed held rates at 4.5%, but markets priced in potential cuts to 2.5% if a recession looms.

Yet within this volatility, infrastructure and renewable energy assets thrived. Why? Because their demand is decoupled from short-term economic cycles.

Infrastructure: The Anchor of Resilience

Data Centers: Fueling the AI Revolution

The data center sector was a standout performer, driven by the insatiable demand for cloud computing and AI. The U.S. Department of Energy forecasts electricity demand to double by 2050, with data centers alone accounting for 20% of global energy consumption by 2030.

Supply constraints—such as limited land with adequate power and cooling infrastructure—are pushing rents higher. Vacancy rates in key markets like Silicon Valley and Chicago have dropped to below 3%, while rental rates rose 14% year-over-year. This creates a virtuous cycle for operators: higher occupancy and pricing power translate to rising valuations.

The MGRAF's infrastructure portfolio includes stakes in Equinix (stock: EQIX) and Digital Realty Trust (stock: DLR), both of which reported double-digit revenue growth in Q1.

Utilities: The Regulated Safe Haven

Regulated utilities, often overlooked in growth portfolios, are quietly profitable. Their stable cash flows—regulated by governments to ensure infrastructure investment—are a hedge against volatility.

Utilities rose 7% in Q1, outperforming the broader market. Companies like NextEra Energy (stock: NEE) and Dominion Energy (stock: D) benefit from guaranteed returns on investments in grid modernization and renewable projects.

Renewable Energy: The Growth Engine

The Macquarie Energy Transition Infrastructure Fund (METI)

The METI, a core component of MGRAF's strategy, targets 9-11% net returns by investing in projects aligned with the energy transition. Its Q1 2025 seed portfolio includes:
- Solar and storage: Galehead (U.S.) and Treaty Oak (U.S.).
- Onshore wind: Aula Energy (Australia).
- Offshore wind: Broadhelm Renewables (Europe).

These projects are strategically located in OECD countries with supportive policies and carbon pricing regimes, ensuring steady demand.

Metals and Minerals: The Supply-Side Bottleneck

Renewable energy's growth hinges on critical materials like copper, aluminum, and silver. However, supply constraints—due to geological limits, NIMBYism, and geopolitical resource nationalism—are creating pricing power for miners.

Companies like Freeport-McMoRan (stock: FCX) and Albemarle (stock: ALB) are beneficiaries of this structural demand.

Challenges and Risks

While infrastructure and renewables offer resilience, they are not immune to macro headwinds:
1. Tariff-Driven Uncertainty: Sectors like semiconductors and pharmaceuticals face tariffs, but infrastructure and renewables are less exposed due to their local supply chains.
2. Regulatory Hurdles: Nuclear energy projects, for instance, face lengthy permitting timelines and public opposition.
3. Liquidity Constraints: The METI's open-ended structure allows quarterly redemptions but caps redemptions at 5% of NAV per quarter to prevent fire sales.

Investment Takeaways for Q2 and Beyond

1. Prioritize Quality and Scale: Invest in infrastructure operators with global footprints and regulated cash flows (e.g., EQIX, NEE).
2. Diversify Geographically: The METI's global mandate—spanning U.S., Australia, and Europe—reduces country-specific risks.
3. Monitor Metals Markets: Exposure to copper and lithium miners can act as a commodity hedge against supply bottlenecks.
4. Stay Long-Term: The energy transition is a decades-long process. Avoid short-term trading; focus on ESG-aligned projects with 10+ year cash flows.

Conclusion

In a quarter defined by uncertainty, the Macquarie Global Listed Real Assets Fund's focus on infrastructure and renewables delivered 3.72% YTD returns—outperforming its peers. While macro risks remain, the structural tailwinds of digitalization and decarbonization are undeniable. For investors seeking stability and growth, these sectors are no longer just a “side bet”—they are the core of tomorrow's economy.

The path forward is clear: allocate to assets that power the future—and ride out the volatility.