Lex Hall: Hi, I'm Lex Hall for Morningstar. Welcome to another edition of "3 Top Picks." Today, I'm joined by Warryn Robertson. He co-manages Lazard's Global Listed Infrastructure Fund. It's just been upgraded to Gold. So, I thought I'd check in with him and sift out a few stock picks that he's got his eye on. We're going to talk about railroads and we're going to talk about some utilities.

G’day again, Warryn.

Warryn Robertson: G’day, Lex. How are you?

Hall: I'm very well. Thanks. Let's talk about some of your picks among North American railroads. What do you see? What do you like there?

Robertson: Yeah, sure. Look, we're favourably disposed at the moment to a number of the North American railroads, in particular, Norfolk Southern and CSX. Both of those companies have performed pretty well in the last quarter. They were down with most of the market in the first quarter given the effects of COVID. And what we've seen is and what we've seen throughout history is those companies can adapt quite quickly and maintain earnings in the face of quite dramatic changes in their volumes. So, through furloughing rolling staff, through the casualisation with their work practices Norfolk Southern and CSX both recorded better than the market expected earnings for the first quarter in the face of what were volume declines of the 15 per cent-odd. And we were comfortable increasing our position earlier in the half with the downturn because of COVID as we've seen these stocks perform like this before. We'd seen what had happened in the global financial crisis. We've seen how they've been able to adjust their cost base as well as to increase prices against customers that are really captive to their services and that's maintained their margins historically back in 2009 and we were confident they'd be able to do that in 2020 and they have. And we're still very comfortable with those positions today.

Hall: Okay. Italian utilities also feature prominently in the fund's holdings. What's got your focus there?

Robertson: Yeah. I mean, Italy is an interesting country. It's had more governments than I've had hot dinners. I think they've had 50 governments since the end of the second World War. But the assets that we invest in, they are essentially monopoly infrastructure assets. And the two that I particularly want to focus on are Snam rig gas which is the monopoly gas transmission networks. They have big pipes that transmit gas around the country and Terna, which is the equivalent for electricity, so the big poles and wires. These businesses in the first quarter when the COVID crisis really did impact the whole of Italy and there was shut down in the country, we saw those share prices fall 40 per cent. And we saw that as a wonderful and unique buying opportunity. These are businesses that are a core, central, essential infrastructure assets for the country. But most importantly, there are two really important elements to the way they make money. One is, they make up less than 10 per cent of a customer's bill, but they are crucial, and they are not subject to volume risks. So, even though people—if people don't turn the lights on or people don't demand as much gas, they are not directly affected by that. So, they have a non—they are a non-volume affected revenue stream. So, 40 per cent decline we saw as a gift basically and we bought on to them quite aggressively and they've performed well and we're still happy owners of them today.

Hall: All right. And the final name on the list, Warryn, is another European name. It's a Spanish multinational.

Robertson: Yeah, Ferrovial. It's the owner of some of the best toll roads in the world. And what's interesting is that those toll roads are based in North America. So, although we had some question marks around Europe, there are some tensions now around the European Union, here's a stock that's listed on the Spanish Stock Exchange for historical reasons, but 85 per cent of our valuation exists in its toll roads in North America.

Hall: A bit like Transurban I suppose?

Robertson: A little. Transurban is a global toll road owner and they do have some exposure outside of Australia, but the bulk of its value is still within Australia. Whereas Ferrovial, the amount of its valuation as ascribe it—Spain is around 10 per cent, two-thirds of the value is the 407 in Ontario Canada which is one of the most unique toll road concessions in the globe. And then, it has three managed line or hot line projects in the state of Texas in the United States. Now, we're very comfortable that you will see some recovery in traffic volumes within a two-year period within Canada and certainly within a four-year period in the United States. And that gave us a lot of confidence when that stock fell appreciably during the COVID-19 pandemic, particularly around February and March to really aggressively buy into that and today we still maintain quite a strong position.