On the 22nd of January 2021, RARE Infrastructure Limited changed its name to ClearBridge Investments Limited.

Infrastructure Index November 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 November, the RARE Global Infrastructure Index (USD) returned +10.0%, underperforming the S&P Global Infrastructure Index (USD) by 280 bps. The reason for the underperformance is the RARE Global Infrastructure Index’s relative underweight to European and Asia Pacific Airports.

  • At the end of the September quarter, the Index mix was allocated as 45% utilities and 55% economically-sensitive assets. Due to market performance, the mix is now 53% utilities and 47% economically-sensitive assets.

Top Contributors to Monthly Performance1

1.    Enel SpA, an Italian electric utility (+0.93%)

Enel SpA is an integrated utility which operates power generation, supply, and distribution headquartered in Italy, and has expanded internationally into regions such as Spain, Latin America, and eastern Europe. Enel rallied during the month with Biden’s U.S. election victory boosting sentiment on renewables. The company also provided guidance which exceeded market expectations.

2.    Union Pacific, a U.S. rail operator (+0.72%)

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. A continued recovery in volumes helped UNP as did the positive news surrounding Phase 3 vaccine trials.

3.    Iberdrola, a Spanish electric utility (+0.64%)

Iberdrola (IBE) 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. Iberdrola rallied during the month with Biden’s U.S. election victory boosting
sentiment on renewables. At the company’s capital markets day, they also provided guidance which was better than market expectations.

Detractors from Monthly Performance1

1.    National Grid, a U.K. gas utility (-0.20%)

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 in November due to concerns over the RIIO-2 final decision in December and Governor Cuomo’s focus on recent storm responses in New York.

2.   American Electric Power, a U.S. electric utility (-0.07%)

American Electric Power is a U.S. regulated company with operations across eleven states. This geographic spread provides diversification and a footprint to take advantage of any state-specific developments and opportunities. U.S. Utilities lagged the broader market, as encouraging COVID-19 vaccine developments spurred a market rotation away from defensive/growth sectors towards more economically sensitive sectors.

3.    Xcel Energy, a U.S. electric utility (-0.04%)

Xcel Energy is a diversified regulated electric utility holding company, with its Colorado and Minnesota franchises being the company’s key assets. The company has been increasing its capital allocation towards rate-based renewables over the past few years, and this has gained recognition by the market. U.S. Utilities lagged the broader market, as encouraging COVID-19 vaccine developments spurred a market rotation away from defensive/growth sectors towards more economically sensitive sectors.

1 All returns are in local currency.

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Disclaimer

1 All returns are in local currency.