Infrastructure Index August Commentary

Overview of the fund

The RARE Global Infrastructure Index seeks to provide focused exposure to infrastructure companies by analysing the actual sources of corporate cash flows rather than high-level industry classifications.

Based on a proprietary methodology, this Index uses a dynamic process that re-weights between more growth-sensitive sectors and defensive sectors according to prevailing economic conditions.

The RARE Global Infrastructure Index methodology includes:

  1. Infrastructure Filter: The MSCI ACWI All-Cap Index is filtered to include companies within 13 GICS infrastructure sub-industries.

  2. Liquidity Filter: Companies are screened for a minimum of $500M market capitalisation and 1-year average daily value traded of $2M.

  3. RARE Exposure Score: Leverages publicly available financial data to score exposure to infrastructure and utilities — including only companies that meet RARE's criteria for infrastructure exposure, quality and focus.

  4. Dividend Yield and Cash Flow Yield Rank: Companies are ranked from highest to lowest dividend yield and cash flow yield. Lower-yielding companies are removed, and highest cash flow companies are added back after being screened for dividends.

  5. Index Weighting: Weighting determined quarterly by market capitalisation and free float (shares publicly available for trading), RARE exposure score, price volatility and region.

  6. Sector Weighting: On a quarterly basis, the OECD G7 Leading Economic Indicators Index (“LEI Index”) is used to establish weight between economically sensitive sectors and more regulated/defensive sectors. Exposure caps and minimums are put in place.

  7. Security Weighting: The Index’s securities are reconstituted and rebalanced quarterly.


Monthly Highlights

  • During the month, the RARE Global Infrastructure Index (USD) returned +2.0%, outperforming the S&P Global Infrastructure Index (USD) by 40 bps. The reason for the outperformance is the RARE Global Infrastructure Index’s relative overweight to Japanese and North American Rail.

  • At the end of the June quarter, the Index mix was allocated as 55% utilities and 45% economically sensitive assets. Due to market performance, the mix is now 59% utilities and 41% economically sensitive assets.

Top Contributors to Monthly Performance1

1.    Union Pacific, a U.S. rail operator (+0.57%)

Union Pacific (UNP) is the largest listed railroad company in North America. UNP’s freight transportation services are crucial to the functioning of the U.S. economy. UNP reported strong quarterly results despite the impact of COVID-19, demonstrating strong cost controls amidst volume declines. UNP shares outperformed as volumes hauled were above market expectations.

2.    Central Japan Railway, a Japanese rail operator (+0.52%)

Central Japan Railway (JR Central) is a passenger railway company based in the Chubu region of central Japan. The company operates high-speed passenger trains (Shinkansen), linking Tokyo with Nagoya and Osaka, and a network of commuter lines centred in Nagoya. JR Central shares benefited as passenger numbers recovered following declines as a result of COVID-19.

3.    Norfolk Southern, a U.S. rail operator (+0.35%)

Norfolk Southern (NSC) is one of the five leading North American rail companies, engaged in the transportation of rail freight in the Southeast, East and Midwest U.S. via interchange with other rail carriers, to and from the rest of the U.S. and Canada. During the month, NSC shares outperformed as volumes hauled were above market expectations and the company demonstrated steady cost controls improving profitability.

Detractors from Monthly Performance1

1.     National Grid, a U.K. gas utility (-0.25%)

National Grid is one of the world’s largest publicly owned utilities, focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States. National Grid’s share price declined during August as concerns around dividend sustainability increased following the S&P and Moody’s altering their A- rating outlook to negative from stable.

2.    Iberdola, Spanish electric utility (-0.18%)

Iberdrola is a multinational integrated electric utility company headquartered in Spain. IBE is engaged in energy networks, renewables, and wholesale and retail operations. IBE has expanded internationally with operations in the U.K. (via Scottish Power), the U.S. (via Avangrid), Brazil (via Neoenergia), and Mexico. IBE shares underperformed in line with the broarder Spanish market, there were no company specific catalysts.

3.    Duke Energy, a U.S. electric utility (-0.11%)

Duke Energy is among the largest electric power companies in the U.S., serving approximately 7.2 million customers in the Carolinas, the Midwest, and Florida, as well as natural gas distribution services in Ohio and Kentucky. Duke’s commercial business is invested in renewable generation. During the month, utilities lagged as the broader market rallied, fuelled by optimism of a vaccine for the coronavirus, fiscal stimulus and ongoing easy monetary policy. Increasing concern around inflation also made for a less constructive environment for utility stocks.

1 All returns are in local currency.


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1 All returns are in local currency.
2 All returns are in local currency.