Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
A RARE source of income
The specialist global listed infrastructure investment manager RARE, known for its research-driven active management and ESG integration strategies, is looking to launch an unhedged version of its RARE Income Fund. With the onset of COVID-19, markets have been volatile to say the least. Investors are looking for a defensive approach for income and hence, examining portfolios and re-evaluating their allocations, asking how each asset exposure fits this environment.
RARE says that “In this economic maelstrom, however, the fixed and essential function of the listed infrastructure sector make it a resilient long-term investment.” Many listed infrastructure stocks have been mispriced due to the COVID-19 market collapse. This opens-up an asset class that is not only mispriced but has growth characteristics and recurring revenue streams. Importantly, listed infrastructure allows managers to actively adjust their portfolio based on relative valuations of different types of assets, while the unlisted infrastructure preferred by pension and industry funds is typically restricted to 50-year assets.
During times of volatility and despair, the key features of listed infrastructure stocks make them an appealing investment. The RARE Infrastructure Fund seeks to explore these opportunities.
Features of the fund
- The Fund commenced in 2010. It is rated Recommended by Lonsec and Zenith, 4.25 Stars by SQM Research.
- Overall, the strategy has $2.37 billion under management. Locally it went from $4 million at the start of 2019 to $180 million as at 30 May 2020 and winning the Max awards ‘product launch of the year.’
- The strategy is made up of global listed infrastructure, well-diversified by sector, region and portfolio weighting. It currently holds 38 securities.
- The Fund currently sits top in the peer group for performance for 1, 3 and 5 year returns.
It is designed for investors seeking:
- Sustainable growing income to meet longer-term funding requirements.
- Differentiation from traditional infrastructure strategies; the fund has lower beta in down markets (approx. 0.24% v MSCI World).
- Designed for a specific portfolio objectives.
- Leverages RARE‘s long-term cash flow valuation approach with dynamic discount rates.
- Buy/sell discipline – share price valuation first – yield is a secondary measure.
Target outcomes
- Total return expectation of 8% to 10% through an investment cycle.
- Income growing above inflation – targeting inflation+5% a year net of withholding tax.
- Benchmark of G7 inflation +5.5% a year through an investment cycle.
- Portfolio diversification – lower correlations and beta to broader equity sectors providing downside protection during times of stress.
Positioning and Outlook
| TOP 10 POSITIONS | END WEIGHT % |
| Red Electrica | 5.72% |
| Nextera Energy Partners | 5.23% |
| National Grid | 4.61% |
| Clearway Energy | 4.35% |
| Dominion Energy | 4.19% |
| TerraForm Power | 4.11% |
| Transurban | 4.04% |
| Snam | 3.92% |
| Spark Infrastructure | 3.65% |
| Energias de Portugal | 3.52% |
| Top 10 Total | 43.34% |
The fund’s largest exposure is in the US and Canada (37%), and consists of exposure to utilities (35%) and economically sensitive sectors (2%). On a regional basis, North America was the top contributor to quarterly performance (+5.80%), led by US electric utilities NextEra Energy Partners (+1.06%), Clearway Energy (+0.98%), TerraForm Power (+0.79%) and Dominion Energy (+0.66%).
The RARE Income Fund is well suited to a post COVID-19 world. All in all, this is a good opportunity for investors to gain exposure to a portfolio of good-quality infrastructure assets that have predictable cash flows.
